Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year. Compute the payback period for this investment.

Question

Nestor Company is considering the purchase of an asset for $100,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.  Compute the payback period for this investment.

Quizplus · Accepted Answer

11eaadfd_cc6f_5231_95d8_47bde250a0cb_TB6948_00 Paid back in year 3 = $20,000/$35,000 = 0.57 years; Payback period = 2 + 0.57 = 2.57 years

Nestor Company Is Considering the Purchase of an Asset for $100,000