Reference: 10-12
Hanley Company purchased a machine for $125,000 that will be depreciated on the straight-line basis over a five-year period with no salvage value. The related cash flow from operations is expected to be $45,000 a year. These cash flows from operations occur uniformly throughout the year.
-The payback method measures:

Question

Quizplus · Accepted Answer

The payback method measures how quickly investment dollars may be recovered, and in this case, the investment cost of $125,000 will be recovered in slightly less than three years ($125,000 divided by $45,000 = 2.78 years).

Reference: 10-12 Hanley Company Purchased a Machine for $125,000 That Will Be