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Blossom Specialties just purchased inventory-management computer software at a cost of $1,332,950. Cost savings from the...

Blossom Specialties just purchased inventory-management computer software at a cost of $1,332,950. Cost savings from the investment over the next six years will produce the following cash flow stream: $183,340, $249,240, $329,600, $520,250, $777,320, and $670,740. What is the payback period on this investment?

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Answer #1
Year Cash flows Cumulative Cash flows
0 (1,332,950) (1,332,950)
1 183340 (1149610)
2 249240 (900370)
3 329600 (570770)
4 520250 (50520)
5 777,320 726800
6 670,740 1397540.

Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).

=4+(50520/777320)

=4.06 years(Approx).

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