ACC – Exercise 15-22 Houston Fashions

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Exercise 15-22

Payback period

Houston Fashions is considering a new product line that would require an investment of $140,000 in fixtures and displays and $180,000 in working capital. Store managers expect the following pattern of net cash inflows from the new product line over the life of the investment.

Year Amount

1 70,000

2 78,000

3 72,000

4 56,000

5 50,000

6 48,000

7 44,000

a. Compute the payback period for the proposed new product line. Houston Fashions requires a four-year pre-tax payback period on its investments. Round your answer to one decimal places.

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