Answer:
2.85405 years
Explanation:
Cash Flows
Year 0 ($78,000)
Year 1 $29,500
Year 2 $32,700
Year 3 $18,500
Year 4 $10,000
Services United would receive $29,500 in year 1 therefore remaining balance is = 78,000 - 29,500 = 48,500
Services United would receive $32,700 in year 2 therefore remaining balance is = 48,500 - 32,700 = 15,800
Services United would receive $18,500 in year 3 therefore remaining balance is = 15,800 - 18,500 = -2700
We observe that the company would recover the initial amount somewhere in year 3
15800 / 18500 = 0.85405 years
Total payback period = 2 years + 0.85405 years = 2.85405 years
Answer:
2.85 years
Explanation:
The time taken to recover initial investment is known as payback period. It is calculated in years. It is the time taken for the total inflows to be equal to the initial outflow.
Year Inflow Outflow Balance
0 - $78,000 ($78,000)
1 $29,500 - ($48,500)
2 $32,700 - ($15,800)
3 $18,500 - $2,700
4 $10,000 - $12,700
The fractional year
= 15800/18500
= 0.85
Period required = 2.85 years
