Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

What is the project's payback period?
A) 1.5 years
B) 2.0 years
C) 3.3 years
D) 4.0 years
E) 4.3 years

Question

Bill plans to open a do-it-yourself dog bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for seven years, after which he plans to scrap the equipment and retire to the beaches of Jamaica.

What is the project's payback period?

What is the project's payback period?
A) 1.5 years
B) 2.0 years
C) 3.3 years
D) 4.0 years
E) 4.3 years

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. Here, $160,000 / $40,000 = 4 years.

Bill Plans to Open a Do-It-Yourself Dog Bathing Center in a Storefront