please help me understand, I\'m completely lost thank you eloa computation; stra

Question

please help me understand, I'm completely lost

thank you

eloa computation; straightline depreciation eoeOray LO P A machine can be purchased for $190.000 and used for five years, yielding the following net incomes, In projecting net incomes, straight-line depreciation is applied using a five-year life and a zero salvage value 1 ar 2 ear Net income ear $12800 $31.800 $76,000 $47,900 $ 127 200 Compute the machine's payback period (gnore taxes) (Round payback period answer to 4 deci Year Net Income Depreciation Net Cash Flow Cumulative Cash Flow (190 000) S (190,000) 11$ .12.800$ 1 m 31,800 76.000 47,900 127 200 38,000 38.000 38 000 38,000 38 000 Payback period F

Explanation / Answer

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period:

Payback Period = A +B/C

In the above formula,

A is the last period with a negative cumulative cash flow;

B is the absolute value of cumulative cash flow at the end of the period A;

C is the total cash flow during the period after A

Solution- question has net operating income but for purpose of calculating pay back period we add depriciation because dep is non cash item hence

Y net cash Fl cum.cash flow

0 (190000) (190000)

1 50800 (139200)

2 69800 (69400)

3 114000 44600

4 85900 130500

5 165200 295700

So payback period as per above formula =A+B/C

Here A =2 year i.e- last period with negative cash flow

B=69400 is the absolute value of Cumulative cash flow at the end of period A

C=114000 is the total cash flow during the period after A

So payback period =

2+ 69400/114000

=2.6088year answer

First whole solution is complete now.

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