Vinson Manufacturing requires all capital investment projects to have a payback period of 5 years or less. Vinson is currently considering an equipment purchase that has an initial cost of $90,000. The equipment is expected to have a ten year life and a salvage value of $5,000. Assuming cash flows are equal, what does the annual cash flow generated by the equipment need to be in order to meet the payback period requirements?

Question

Quizplus · Accepted Answer

To meet a payback period of 5 years, the annual cash flow must be $18,000 ($90,000 initial cost / 5 years).

Vinson Manufacturing Requires All Capital Investment Projects to Have a Payback