Answer:
PAYBACK PERIOD
Year Cashflow Cummulative cashflow
$ $
0 (16,000) (16,000)
1 8,000 (8,000)
2 6,000 (2,000)
3 5,000 3000
4 6,000
5 5,000
Payback period
= 2 years + 2,000/5,000
= 2.4 years
Explanation:
In this case, we need to deduct the initial outlay from the cashflows for each year until the initial outlay is fully recovered.
The payback period is a term used under capital budgeting that denotes the time required to recoup the fund applied in an investment. This is also done to determine the break-even point after which the business will earn positive cash flows.
The payback period for the company is 2.4 years.
The cumulative cash flow table for the payback period is attached below:
The computation of the pay-back period:
[tex]\begin{aligned}\text{Payback Period}&=\text{Year before the discounting payback occurs}\\&+\dfrac{\text{Cumulative cash flow}}{\text{Cashflow of last year}}\\&=2\;\text{Years}+\dfrac{\$2,000}{\$5,000}\\&=2\;\text{Years}+0.4\\&=2.4\;\text{years}\end{aligned}[/tex]
The characterstics of capital budgeting are:
b. Long term planning: When a business uses a capital budgeting system it plans its investment of funds and sources of funds for the longer terms so that it becomes easy for the business to run the business operations comfortably.
c. Large cash investment: When a business wants to put the funds for a larger investment then capital budgeting helps the business to know the flow of cash at the end or during each year.
To know more about the payback period, refer to the link:
https://brainly.com/question/13057308
