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# FM11 5 - -16,125 4 12,000-4,125 5 12,000 7,875 6 12,000...

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Answers and Solutions: 11 - 5 11-4 PV = \$12,000[(1/I)-(1/(I*(1+I) N )] = \$12,000[(1/0.12)-(1/(0.12*(1+0.12) 8 )] = \$59,611.68. Financial calculator: Find present value of future cash flows by inputting N = 8, I/YR = 12, PMT = -12000, FV = 0, then solve for PV = \$59,611.68. PI = PV of future cash flows / Initial cost = \$59,611.68/\$52,125 = 1.14. 11-5 Year CF Cumulative CF 0 -52,125 -52,125 1 12,000 -40,125 2 12,000 -28,125 3 12,000
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Unformatted text preview: -16,125 4 12,000 -4,125 5 12,000 7,875 6 12,000 19,875 7 12,000 31,875 8 12,000 43,875 The cumulative cash flows turns positive in Year 5, so the payback will be 4 plus the part of Year 5 that is required to return the investment: Payback = 4 + (\$4,125/\$12,000) = 4.34. Because the future cash flows are identical, we can also find the payback period by dividing the cost by the cash flow: \$52,125/\$12,000 = 4.34....
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