Question

Does this loook correct? Can someone verify

The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment 1 $56,000 $ 6,000 2 3 4 5 6 7 8 9 10 Cash Inflow $ 2,000 $ 4,000 $ 8,000 $ 9,000 $12,000 $10,000 $ 8,000 $ 6,000 $ 5,000 $ 5,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the payback period of the investment. (Round your answer to 1 decimal place.) Payback period 8.6 years

Answer 1

1

Year	Cash outflow ($)	Cash inflow ($)	Uncovered cash ($)
1	56000	2000	54000
2	6000	4000	56000
3	-	8000	48000
4	-	9000	39000
5	-	12000	27000
6	-	10000	17000
7	-	8000	9000
8	-	6000	3000
9	-	5000	-

Payback period = [8 years + ($3000 / $5000)]
=> (8 years + 0.6year)
=> 8.6 years (Ans)

2

NO
SInce entire investment is recovered before we reach the last year, therefore any changes in cash flow of year 10 will have no effect on Payback period

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