Investment in depreciable equipment$560,000 Annual net cash flows $82,000 Life of the equipment 16years Salvage value$0 Discount rate 9% 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: (Round your answer to 1 decimal place.) Noreen_5e_Rechecks_2019_10_16 Multiple Choice 0.1 years 1.0 years 4.8 years 6.8 years

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Business

Harper

20 February, 04:13

Investment in depreciable equipment$560,000 Annual net cash flows $82,000 Life of the equipment 16years Salvage value$0 Discount rate 9% 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: (Round your answer to 1 decimal place.) Noreen_5e_Rechecks_2019_10_16 Multiple Choice 0.1 years 1.0 years 4.8 years 6.8 years

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Mekhi Weaver · Answer 1

The correct option is the last one, 6.8 years

Explanation:

The payback period is the length of time it takes for an investor to realize the initial investment in a project, in simple terms, it is the time horizon wherein the project pays back the capital investment locked in it.

After the payback period, the project begins with return on investment phase, a phase where cash flows received are excess over and above the initial capital outlay.

Payback=initial investment/annual cash inflow

initial investment is $560,000

annual net cash flow is $82,000

payback period=$560,000/$82,000=6.8 years