Reference: 10-02
Oriental Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | }
\hline \text { Investment in depreciable equipment } & \$ 200,000 \
\hline \text { Annual net cash flows } & \$ 50,000 \
\hline \text { Life of the equipment } & 10 \text { years } \
\hline \text { Salvage value } & \$ 20 \
\hline \text { Discount rate } & 10 \% \
\hline
\end{array}$$ The company uses straight-line depreciation on all equipment.
-The payback period for the investment is closest to:

Question

Reference: 10-02
Oriental Company has gathered the following data on a proposed investment project: $$\begin{array} { | l | l | } 
\hline \text { Investment in depreciable equipment } & \$ 200,000 \
\hline \text { Annual net cash flows } & \$ 50,000 \
\hline \text { Life of the equipment } & 10 \text { years } \
\hline \text { Salvage value } & \$ 20 \
\hline \text { Discount rate } & 10 \% \
\hline
\end{array}$$ The company uses straight-line depreciation on all equipment.
-The payback period for the investment is closest to:

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual net cash flow. Here, the initial investment is $200,000, and the annual net cash flow is $50,000. Thus, the payback period is $200,000 / $50,000 = 4 years. Since the options do not include 4 years exactly, the closest option is 5.0 years.

Reference: 10-02 Oriental Company Has Gathered the Following Data on a Proposed

Reference: 10-02
Oriental Company Has Gathered the Following Data on a Proposed