Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Investment Cash Inflow $ 5,000 $ 10,000 $ 16,000 $ 17,000 $ 20,000 $ 18,000 Year 1 2 3 4 5 6 7 8 9 10 $ 54,000 $ 7,000 $ 16,000 $ 14,000 $ 13,000 $ 13,000 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?
Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Investment Cash Inflow $ 5,000 $ 10,000 $ 16,000 $ 17,000 $ 20,000 $ 18,000 Year 1 2 3 4 5 6 7 8 9 10 $ 54,000 $ 7,000 $ 16,000 $ 14,000 $ 13,000 $ 13,000 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:# Investment Analysis for Unter Corporation
Unter Corporation, an architectural design firm, is evaluating the feasibility of an investment opportunity. Below is the breakdown of the investment and expected cash inflows over a 10-year period.
## Cash Flow Table
| Year | Investment | Cash Inflow |
|------|------------|-------------|
| 1 | $54,000 | $5,000 |
| 2 | $7,000 | $10,000 |
| 3 | - | $16,000 |
| 4 | - | $17,000 |
| 5 | - | $20,000 |
| 6 | - | $18,000 |
| 7 | - | $16,000 |
| 8 | - | $14,000 |
| 9 | - | $13,000 |
| 10 | - | $13,000 |
## Required Analysis
1. **Determine the Payback Period**: Calculate the time required to recover the initial investment. Round your answer to one decimal place.
2. **Impact on Payback Period**: Assess how the payback period would be affected if the cash inflow in the last year were several times larger.
To find the payback period, enter the cumulative cash flow calculations and analysis in the tabs provided.
---
**Note:** Completing this accurate financial assessment will aid in making informed investment decisions.
Expert Solution
Step 1: Introduction
Payback period :— It is the time period in years which is required to recover all the cash outflows made during the period of project.
Payback period
= Base year + (Amount to be recovered ÷ Next year cash flow)
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