An initial investment of $42,000 is expected to generate annual cash flows of $10,000, $15,000, $15,000, and $12,000, respectively.Assume straight-line depreciation and ignore income taxes.The payback period is _____.

Question

Quizplus · Accepted Answer

The payback period is calculated by adding the cash flows until the initial investment is recovered. After 3 years, $40,000 is recovered ($10,000 + $15,000 + $15,000), leaving $2,000 to be recovered in the fourth year. Since the fourth year's cash flow is $12,000, it takes 2/12 of a year to recover the remaining $2,000, resulting in a payback period of 3.17 years.

An Initial Investment of $42,000 Is Expected to Generate Annual