The payback period exists termed as the period the company carries to reach the break-even point.
The term "payback time" refers to the amount of years needed to recoup the initial monetary outlay. It is, in other words, the length of time that a machine, facility, or other investment has generated enough net income to pay its investment costs.
In capital planning, the term "payback period" describes the amount of time needed to recover investment costs or to break even. The payback period would be two years, for instance, if an investment of $1,000 was made at the beginning of year one and returned $500 at the conclusion of year one and year two, respectively.
The time it takes the business to break even is referred to as the payback period. The time frame known as the payback period is required for the funds raised for the company's expansion to be recovered.
The calculation of the investment's payback period is attached below.
Due to the various accounting periods, the payback from the previous year has no impact on the payback from this year.
The complete question is,
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows: Year Investment Cash Inflow 1 $ 15,000 $ 1,000 2 $ 8,000 $ 2,000 3 $ 2,500 4 $ 4,000 5 $ 5,000 6 $ 6,000 7 $ 5,000 8 $ 4,000 9 $ 3,000 10 $ 2,000 Required: 1. Determine the payback period of the investment. 2. Would the payback period be affected if the cash inflow in the last year were several times as large.
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