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.
-What is the payback period closest to?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash flow. Here, the initial investment is $125,000 and the annual cash flow is $45,000. Thus, the payback period is $125,000 / $45,000 = 2.777... years, which is closest to 2.8 years.

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