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Payback Method, Uncertain Expected Cash Flows

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1) Payback Method
The company paid $50,000 cash for a capital investment. The company expects the investment to generate net cash inflows of $8,400 per year. What is the payback period of this investment?

2) Uncertain Expected Cash Flows
The company is considering an investment that costs $785,000 today and has a salvage value in 10 years of $137,714, but the company is not sure how much net annual cash inflow will be provided by the investment. The company has a discount rate of 7%. Compare the net amount of annual cash inflow required to break even.

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Solution Summary

Answers 2 questions
1) Payback Method: payback period of investment is calculated
2) Uncertain Expected Cash Flows: calculates the net amount of annual cash inflow required to break even

Solution Preview

Payback Method
The company paid $50,000 cash for a capital investment. The company expects the investment to generate net cash inflows of $8,400 per year. What is the payback period of this investment?

Investment= $50,000
Net cash flow= $8,400 per year

Therefore, payback period= 5.95 years =50000/8400

Answer: 5.95 years

Uncertain Expected ...

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