Exercise 10-13A (Algo) Determining the payback period with uneven cash flows LO 10-4
Rundle Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased
on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Rundle
would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow:
Year Nature of Item Cash Inflow Cash Outflow
Year 1 Purchase price $87,800
Year 1 Revenue $36,000
Year 2 Revenue 36,000
Year 3 Revenue 25,000
Year 3 Major overhaul 9,200
Year 4 Revenue 22,000
Year 5 Revenue 20,000
Year 5 Salvage value 8,000
Required
a.&b. Determine the payback period using the accumulated and average cash flows approaches.
Note: Round your answers to 1 decimal place.
a. Payback period (accumulated cash flows)
b. Payback period (average cash flows)
years
years
