Oriental Corporation has gathered the following data on a proposed investment project:

Investment in depreciable equipment $ 200,000

Annual net cash flows $ 50,000

Life of the equipment 10 years

Salvage value $ 0

Discount rate 10 %

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment would be: Multiple Choice

a. 2.41 years

b. 0.25 years

c. 10 years

d. 4 years

Question

Business

Danna Mason

21 June, 07:22

Oriental Corporation has gathered the following data on a proposed investment project:

Investment in depreciable equipment $ 200,000

Annual net cash flows $ 50,000

Life of the equipment 10 years

Salvage value $ 0

Discount rate 10 %

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment would be: Multiple Choice

a. 2.41 years

b. 0.25 years

c. 10 years

d. 4 years

+3

Answers (1)

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Avila · Answer 1

d. 4 years

Explanation:

The formula to compute the payback period is shown below:

= Initial investment : Net cash flow

where,

Initial investment is $200,000

And, the net cash flow = $50,000

Now put these values to the above formula

So, the value would equal to

= ($200,000) : ($50,000)

= 4 years

All other information which is given is not relevant. Hence, ignored it