The net initial investment for a piece of construction equipment is $2,000,000. Annual cash inflows are expected to increase by $400,000 per year. The equipment has an 8-year useful life. What is the payback period?

payback period is 5 years

Explanation:

given data

net initial investment = $2000000

annual cash inflow = $400000

useful life = 8 year

to find out

payback period

solution

we know here initial investment of equipment and cash inflow increase

so here payback period will be express as

payback period = net investment / cash inflow ... 1

put here value in equation 1

payback period = net investment / cash inflow

payback period = 2000000 / 400000

payback period = 5

so payback period is 5 years