Exercise - Payback Method
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows:
|
Year
|
Investment
|
Cash Inflow
|
|
1
|
$53,000
|
$3,000
|
|
2
|
$3,000
|
$6,000
|
|
3
|
|
$14,000
|
|
4
|
|
$15,000
|
|
5
|
|
$18,000
|
|
6
|
|
$16,000
|
|
7
|
|
$14,000
|
|
8
|
|
$12,000
|
|
9
|
|
$11,000
|
|
10
|
|
$11,000
|
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?