Ace Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $310,000 the first year, $280,000 the second year, and $260,000 each year thereafter for eight years. Compute the payback period. Round to one decimal place Net Cash Outflows Net Cash Inflows Year Amount Invested Annual Accumulated 0 1 2 3 4 5 Now that you understand how to fill in the payback schedule, the rest has been done for you. Review the table and determine between what years the payback will occur. The payback will occur after years, but before years. Now let's calculate the amount needed to complete recovery after year 5. Amount recovered Amount needed to complete Investment - at the end of 5 years = recovery in year 6 - = Finally, calculate the payback period. (Round your answer to one decimal place.) Years recovered Amount needed to complete Net cash inflow + ( recovery in year 6 / in year 6 ) = Payback + ( / ) = The payback is ______years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ace Hardware is adding a new product line that will require an investment of $1,512,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $310,000 the first year, $280,000 the second year, and $260,000 each year thereafter for eight years. Compute the payback period. Round to one decimal place

	Net Cash Outflows	Net Cash Inflows
Year	Amount Invested	Annual	Accumulated
0
1
2
3
4
5

Now that you understand how to fill in the payback schedule, the rest has been done for you. Review the table and determine between what years the payback will occur.

The payback will occur after

years, but before

years.

Now let's calculate the amount needed to complete recovery after year

		Amount recovered		Amount needed to complete
Investment	-	at the end of 5 years	=	recovery in year 6
	-		=

Finally, calculate the payback period. (Round your answer to one decimal place.)

Years recovered		Amount needed to complete		Net cash inflow
	+ (	recovery in year 6	/	in year 6	) =	Payback
	+ (		/		) =

The payback is ______years.

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