Renfro 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. Shaw would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow.

Required
a. Determine the payback period using the accumulated cash flows approach.
b. Determine the payback period using the average cash flowsapproach.

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Year Nature of Item Cash Inflow Cash Outfiow 2010 2010 2011 2012 2012 2013 2014 2014 Purchase price Revenue Revenue Revenue Major overhaul Revenue Revenue Salvage value $36,000 S15,000 15,000 10,500 4,500 9,000 7,200 4,800