Green Way Packaging is considering a $600,000 investment in new equipment that is anticipated to produce the following data over a five-year life: $\begin{array}{rrrr}\text { Year}&\text { Cash Inflows }&\text { Cash Outflows } & \text { Depreciation }\\hline
1 & \$ 350,000 & \$ 130,000 & \$ 120,000 \
2 & 450,000 & 190,000 & 120,000 \
3 & 450,000 & 170,000 & 120,000 \
4 & 340,000 & 150,000 & 120,000 \
5 & 300,000 & 130,000 & 120,000
\end{array}$ Ignoring income taxes and assuming that cash flows occur evenly throughout a year, the equipment's approximate payback period is:

Question

Green Way Packaging is considering a $600,000 investment in new equipment that is anticipated to produce the following data over a five-year life: $\begin{array}{rrrr}\text { Year}&\text {  Cash Inflows }&\text { Cash Outflows } & \text { Depreciation }\\hline
1 & \$ 350,000 & \$ 130,000 & \$ 120,000 \
2 & 450,000 & 190,000 & 120,000 \
3 & 450,000 & 170,000 & 120,000 \
4 & 340,000 & 150,000 & 120,000 \
5 & 300,000 & 130,000 & 120,000
\end{array}$ Ignoring income taxes and assuming that cash flows occur evenly throughout a year, the equipment's approximate payback period is:

Quizplus · Accepted Answer

The payback period is calculated by determining how long it takes for the cumulative cash inflows to equal the initial investment. The net cash flows each year are: Year 1: $220,000, Year 2: $260,000, Year 3: $280,000, Year 4: $190,000, Year 5: $170,000. By the end of Year 2, the cumulative cash flow is $480,000. In Year 3, an additional $120,000 is needed to reach $600,000, which takes approximately 5 months ($120,000/$280,000 * 12 months). Thus, the payback period is 2 years and 5 months.

Green Way Packaging Is Considering a $600,000 Investment in New