Compute Project A's payback period. Payback Period Choose Numerator:Choose Denominator: Payback Period Payback period

Use the following information for the Quick Study below. [The following information applies to the questions displayed below.] Project A requires a $280,000 initial investment for new machinery with a five-year life and a salvage value of $30,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $20,000 per year for the next five years.

Question

Laura Kelly

Business

3 March, 06:15

Compute Project A's payback period. Payback Period Choose Numerator:Choose Denominator: Payback Period Payback period

Use the following information for the Quick Study below. [The following information applies to the questions displayed below.] Project A requires a $280,000 initial investment for new machinery with a five-year life and a salvage value of $30,000. The company uses straight-line depreciation. Project A is expected to yield annual net income of $20,000 per year for the next five years.

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Answers (1)

Know the Answer?

Ashanti Yates · Answer 1

3.5 years, or 3 and a half years.

Explanation:

Depreciation = (Initial investment - salvage value) / number of useful life = ($280,000 - $30,000) / 5 = $250,000 / 5 = $50,000

Net cash inflow = Annual net income + depreciation = $20,000 + $50,000 = $80,000

Payback period = Initial investment / Net cash flow = $280,000 / $80,000 = 3.5 years, or 3 and a half years.