$$\text { Reference: } 10 - 10$$ Fast Food, Inc. has purchased a new donut maker. It cost $16,000 and has an estimated life of 10 years with no salvage value. The following annual donut sales and expenses are projected: $$\begin{array} { | l | r | l | }
\hline \text { Sales } & & \$ 22,000 \
\hline \text { Expenses: } & & \
\hline \text { Flour, etc., required in making donuts } & \$ 10,000 & \
\hline \text { Salaries } & 6,000 & \
\hline \text { Depreciation } & 1,600 & 17,600 \
\hline \text { Net income } & & \$ 4,400 \
\hline
\end{array}$$
-The payback period on the new machine is closest to:

Question

$$\text { Reference: } 10 - 10$$ Fast Food, Inc. has purchased a new donut maker. It cost $16,000 and has an estimated life of 10 years with no salvage value. The following annual donut sales and expenses are projected: $$\begin{array} { | l | r | l | } 
\hline \text { Sales } & & \$ 22,000 \
\hline \text { Expenses: } & & \
\hline \text { Flour, etc., required in making donuts } & \$ 10,000 & \
\hline \text { Salaries } & 6,000 & \
\hline \text { Depreciation } & 1,600 & 17,600 \
\hline \text { Net income } & & \$ 4,400 \
\hline
\end{array}$$
-The payback period on the new machine is closest to:

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual net cash inflow. The net cash inflow is the net income plus depreciation (since depreciation is a non-cash expense). So, the annual net cash inflow is $4,400 + $1,600 = $6,000. The payback period is $16,000 / $6,000 = 2.67 years, which is closest to 2.7 years.

Reference: 10−10\text { Reference: } 10 - 10 Reference: 10−10 Fast Food, Inc

$\text { Reference: } 10 - 10$ Fast Food, Inc