George William buys a machine for his business. The machine costs $150,000. George estimates that the machine can produce $40,000 cash inflow per year for the next five years. George's cost of capital is 10 percent. What is the payback for this investment?

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the cash inflows to repay the initial investment. The machine costs $150,000 and generates $40,000 per year. $150,000 / $40,000 = 3.75 years.

George William Buys a Machine for His Business