Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000.The equipment has an estimated useful life of eight years.Estimated annual sales and operating expenses related to the pasta equipment follow: $\begin{array}{lrr}
\text { Annual sales } &\$88,00\
\text {Labor costs } &(72,000)\
\text { Depreciation of equipment } &\underline{(6,000)}\
\text { Operating income} &\$10,000\
\text { Income taxes } &\underline{(4,000)}\
\text { Net income } &\underline{\$6,000}\
\end{array}$

The estimated payback of the investment in the pasta equipment is:

Question

Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000.The equipment has an estimated useful life of eight years.Estimated annual sales and operating expenses related to the pasta equipment follow: $\begin{array}{lrr}
  \text { Annual sales } &\$88,00\
 \text {Labor costs  } &(72,000)\
 \text { Depreciation of equipment } &\underline{(6,000)}\
 \text {  Operating income} &\$10,000\
 \text { Income taxes } &\underline{(4,000)}\
 \text { Net income } &\underline{\$6,000}\
\end{array}$

The estimated payback of the investment in the pasta equipment is:

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. The annual cash inflow is the operating income before depreciation, which is $10,000 + $6,000 = $16,000. The payback period is $48,000 / $16,000 = 3 years.

Boccardi Inc The Estimated Payback of the Investment in the Pasta Equipment