Determining the payback period with uneven cash flows Cascade Snowmobile Company is considering whether to invest in a particular new snowmobile model. The model is top-of-the-line equipment for which Cascade expects high demand during the first year it is available for rent. However, as the snowmobile ages, it will become less desirable and its rental revenues are expected to decline. The expected cash inflows and outflows follow.

Required
a. Determine the payback period using the accumulated cash flows approach.
b. Determine the payback period using the average cash flows approach.

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Cash Outflow Year Nature of Cash Flow Cash Inflow Purchase price Revenue $35,000 2013 $20,000 15,000 13,750 2013 Revenue 2014 2015 Revenue Major overhaul Revenue 2016 5,000 7,500 5,000 4,000 2017 2018 Revenue Salvage value 2019