Ataxia Fitness Center is considering an investment in some additional weight training equipment. The equipment has an estimated useful life of 10 years with no salvage value at the end of the 10 years. Ataxia's internal rate of return on this equipment is 8%. Ataxia's discount rate is also 8%. The payback period on this equipment is closest to (Ignore income taxes.): Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.

Question

Quizplus · Accepted Answer

Payback period = Investment required ÷ Annual net cash inflow
Note also that
Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
Consequently, the payback period equals the factor of the internal rate of return.
From Table 7B-2, the factor for an annuity at 8% over 10 years is 6.710.
Therefore the payback period is 6.71 years.

Ataxia Fitness Center Is Considering an Investment in Some Additional