Hardware is adding a new product line that will require an investment of . Managers estimate that this investment will have a​ 10-year life and generate net cash inflows of the first​ year, the second​ year, and each year thereafter for eight years. The investment has no residual value. Compute the payback period.

Answer: 6.17 years

Explanation:

Payback period = Period before debt is paid back + Amount left to to be paid back / Cashflow in year of payback.

Year                   Cash Flows                        Amount left to be paid back

 0                       (1,540,000)                                  (1,540,000)

  1                          315,000                                    (1,225,000)

  2                         265,000                                   (960,000)

  3                         230,000                                   (730,000)

 4                         230,000                                    (500,000)

 5                         230,000                                    (270,000)

 6                        230,000                                     (40,000)

 7                        230,000                                     190,000

Year before payback = 6

Payback amount = 6 + (40,000 / 230,000)

= 6.17 years

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