What fallacy of payback analysis does this ror value

Reference no: EM13205068

Julian Browne, owner of Clear Interior Environments, purchased an air scrubber, HEPA vacuum, and other equipment for mold removal for $15,000 eight months ago. Net cashflows were $-2000 for each of the first two months, followed by $1000 per month for months 3 and 4. For the last 4 months, a contract generated a net $6000 per month. Julian sold the equipment yesterday for $3000 to a friend.

What is the estimated annual (nominal) rate of return based only upon the net cash flows for the 8 months of ownership? What fallacy of payback analysis does this ROR value and the payback periods above demonstrate, if the owner has disposed of the equipment after 7 months (approximate payback time) for S=0.

Reference no: EM13205068

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