The cost of a new machine is $250,000. The machine has a five-year life and no salvage value. If the cash flow each year is equal to 25 percent of the cost of the machine, calculate the payback period for the project.
A)2.0 years
B)2.5 years
C)3.0 years
D)4.0 years

Question

Quizplus · Accepted Answer

The annual cash flow is 25% of $250,000, which is $62,500. The payback period is the time it takes for the cash flows to cover the initial investment. $250,000 / $62,500 = 4.0 years.

The Cost of a New Machine Is $250,000