Question: Hi, I need help with the questions below please. Compute the time needed for payback for the following example assuming the investment required an up-front
Hi, I need help with the questions below please.
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 "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.).
| Year | Unrecovered Investment (Beginning of year) | Annual Cash Flow | Time Needed for Payback | ||
| 1 | $100,000 | $20,000 | 1 year | ||
| 2 | 30,000 | 1 | |||
| 3 | 40,000 | 1 | |||
| 4 | 50,000 | ||||
| 5 | 60,000 |
Total time needed for payback (to the nearest tenth of a year) =________
Question Content Area
Average Rate of Return
The average rate of return is another method that does not use present value and is commonly used in making capital investment decisions. Unlike the cash payback method, the average rate of return focuses on income rather than cash flow.
Assume that the investment involves an initial outlay of $100,000 with a five-year useful life and no salvage value under straight-line depreciation. The revenues are as follows: Year 1 - $20,000, Year 2 - $30,000, Year 3 - $40,000, Year 4 - $50,000 and Year 5 - $60,000.
Use the minus sign to indicate a net loss. If an amount is zero, enter "0".
| Year | Revenues | Expenses | Net Income | |||
| Year 1 Net Income (loss) | = | 20,000 | - | = | ||
| Year 2 Net Income (loss) | = | 30,000 | - | = | ||
| Year 3 Net Income (loss) | = | 40,000 | - | = | ||
| Year 4 Net Income (loss) | = | 50,000 | - | = | ||
| Year 5 Net Income (loss) | = | 60,000 | - | = |
Total Net Income (five years) = $______________
| Average Net Income = |
| =$_____________ |
| Average Rate of Return = |
| =______________% |
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