Dandy's Family Fun Center bought new go-karts for its recreation facility. The useful life is 7 years. The go-karts had a total cost of $4400 and will generate $1100 total cash inflows each year for the life of the go-karts. The residual value of the go-karts is $550. The payback period in years is closest to

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. Here, the initial investment is $4400 - $550 (residual value) = $3850. The annual cash inflow is $1100. So, the payback period is $3850 / $1100 = 3.5 years, which is closest to 4.00 years.

Dandy's Family Fun Center Bought New Go-Karts for Its Recreation