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19 October, 09:17

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?

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  1. 19 October, 11:17
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    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
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