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29 October, 03:08

Runnin' Wild Family Fun Center bought new go-karts for its recreation facility. The useful life is 6 years. The go-karts had a total cost of $5,100 and will generate $1,700 total cash inflows each year for the life of the go-karts. The residual value of the go-karts is $650. The payback period in years is closest to

A) 3.38. B) 3.00. C) 2.62. D) 2.17.

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  1. 29 October, 03:24
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    The payback period in years is closest to;

    B). 3.00

    Explanation:

    Step 1: Determine the total cost of the go-kart

    Using the expression;

    Total cost=purchase cost+annual depreciation*number of years

    where;

    purchase cost=$5,100

    assume annual depreciation=0

    number of years to payback=n

    replacing;

    Total cost=5,100 + (0*n) = 5,100

    Step 2: Total cash inflows

    Total cash inflows = (1,700*n) = 1,700 n

    Step 3: Determine payback period

    Equate total cost to total cash inflows

    5,100=1,700 n

    n=5,100/1,700

    n=3

    The payback period in years is closest to 3 years
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