Pinero is considering a $600,000 investment in new equipment that is anticipated to produce the following net cash inflows: $$\begin{array} { c c }
\text { Year } & \text { Net Cash Inflows } \
1 & \$ 120,000 \
2 & 250,000 \
3 & 110,000 \
4 & 80,000 \
5 & 160,000
\end{array}$$ If cash flows occur evenly throughout a year, the equipment's payback period is:

Question

Pinero is considering a $600,000 investment in new equipment that is anticipated to produce the following net cash inflows: $$\begin{array} { c c } 
\text { Year } & \text { Net Cash Inflows } \
1 & \$ 120,000 \
2 & 250,000 \
3 & 110,000 \
4 & 80,000 \
5 & 160,000
\end{array}$$ If cash flows occur evenly throughout a year, the equipment's payback period is:

Quizplus · Accepted Answer

The cumulative cash inflows by the end of year 4 are $560,000. In year 5, an additional $40,000 is needed to reach the $600,000 investment, which takes 3 months ($40,000/$160,000 * 12 months). Thus, the payback period is 4 years and 3 months.

Pinero Is Considering a $600,000 Investment in New Equipment That