Hammer Saw Tools is considering a $7,000 investment.Which of the following alternative cash inflows has the shortest payback period?

Question

Quizplus · Accepted Answer

The payback period for Option B is 2 years ($7,000 initial investment / $8,000 cash inflow in Year 2). Option A has a payback period of 5 years, Option C has a payback period of 4.67 years ($7,000 initial investment / $1,500 annual cash inflow), and Option D has a payback period of 2.8 years (($7,000 - $3,000) initial investment / $2,500 annual cash inflow). Therefore, Option B has the shortest payback period.

Hammer Saw Tools Is Considering a $7,000 Investment