Lassen Inc.is considering a $200,000 capital investment project,with the following cash flows:
$$\begin{array} { l c }
\text { Year } & \text { Cash Flow } \
1 & \$ 40,000 \
2 & 95,000 \
3 & 45,000 \
4 & 50,000 \
5 & 30,000 \
6 & 20,000
\end{array}$$
Rounded to the nearest month,what is the cash payback period?

Question

Lassen Inc.is considering a $200,000 capital investment project,with the following cash flows:
$$\begin{array} { l c } 
\text { Year } & \text { Cash Flow } \
1 & \$ 40,000 \
2 & 95,000 \
3 & 45,000 \
4 & 50,000 \
5 & 30,000 \
6 & 20,000
\end{array}$$
Rounded to the nearest month,what is the cash payback period?

Quizplus · Accepted Answer

The cumulative cash flow reaches $200,000 between the end of year 3 and year 4. By the end of year 3, the cumulative cash flow is $180,000. An additional $20,000 is needed, which is achieved in 5 months of year 4 ($20,000/$50,000 * 12 months = 4.8 months, rounded to 5 months). Thus, the payback period is 3 years and 5 months.

Lassen Inc Rounded to the Nearest Month,what Is the Cash Payback Period