Newport Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in cash flow of $200,000.The equipment will have an initial cost of $900,000 and have a 6-year life.There is no salvage value for the equipment.What is the payback period?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash flow increase. So, $900,000 / $200,000 = 4.5 years.