A florist is buying a number of motorcycles to expand its delivery service. These will cost $ 79 comma 000 but are expected to increase profits by $ 3 comma 000 per month over the next four years. What is the payback period in this case?

Question

Business

Aisha Malone

7 December, 18:10

A florist is buying a number of motorcycles to expand its delivery service. These will cost $ 79 comma 000 but are expected to increase profits by $ 3 comma 000 per month over the next four years. What is the payback period in this case?

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Answers (1)

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Gordon Todd · Answer 1

26.33 months or 2 years, six months and 10 days

Explanation:

The payback period is simply the amount of time needed to recover the initial investment. The payback period doesn't consider any discount rate to the cash flows generated by the project (this discounted payback period discounts the cash flows).

we divide the total investment by the monthly cash flows = $79,000 / $3,000 = 26.33 months or to be more exact 2 years, six months and 10 days.