When the annual cash flows are unequal, the payback period is computed by adding the annual cash flows until such time as the original investment is recovered. If a fraction of a year is needed, it is assumed that cash flows occur evenly withineach year.The steps for determining the payback period with uneven cash flows is as follows:1. Add the annual cash flows to one another until the investment is recovered.2. For each full year's worth of cash flows consumed, add that year to your calculation for total payback years.3. If you arrive at a point where only part of the year's cash flows are needed, only add the fraction of the year's cash flows relevant to recovering the initial investment to the total payback years.4. If the unrecovered investment is greater than the annual cash flow, the payback period is "1". If the unrecovered investment is less than the annual cash flow the time needed for payback is computed by dividing the unrecovered investment bythe annual cash flow for than year.+ Explanation of Time Needed for Payback with uneven cash flowsNote: For each year in which the unrecovered investment meets or exceeds the annual cash flow, this is1. For years in which the annual cash flow exceeds the unrecovered investment, this is the unrecoveredinvestment divided by the annual cash flow for that year.IfThenUnrecoveredAnnualTime Needed1 yearInvestmentCash Flowfor PaybackUnrecoveredAnnualTime NeededUnrecovered InvestmentInvestmentCash Flowfor PaybackAnnual Cash Flow for the YearCompute the time needed for payback for the following example assuming the investment required an up-front capital outlay of $100,000 and the uneven annual cash flows for each year are provided in the table. If an amount is zero, enter "0".For the time needed for payback, enter your answer to one decimal place, if less than one year (i.e. 0.2, 0.5, etc.).Unrecovered InvestmentYearAnnual Cash FlowTime Needed for Payback(Beginning of year)1$100,000$20,0001 year230,000340,000450,000560,000Total time needed for payback (to the nearest tenth of a year)years

Compute the time needed for payback for the following example assuming the investment required an up-front capital outlay of $100,000 and the uneven annual cash flows for each year are provided in the table. If an amount is zero, enter For the time needed for payback, enter your answer to one decimal place, if less than one year (i.e. 0.2, 0.5, etc.). Unrecovered Investment Year Annual Cash Flow Time Needed for Payback (Beginning of year) 1 $100,000 $20,000 1 year 2 30,000 40,000 50,000

Compute the time needed for payback for the following example assuming the investment required an up-front capital outlay of $100,000 and the uneven annual cash flows for each year are provided in the table. If an amount is zero, enter For the time needed for payback, enter your answer to one decimal place, if less than one year (i.e. 0.2, 0.5, etc.). Unrecovered Investment Year Annual Cash Flow Time Needed for Payback (Beginning of year) 1 $100,000 $20,000 1 year 2 30,000 40,000 50,000

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 2IEE

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