A piece of equipment costs $30,000, and is expected to generate $8,500 of annual cash revenues and $1,500 of annual cash expenses. The disposal value at the end of the estimated 10-year life is $3,000. Ignoring income taxes, the payback period is:

Question

Quizplus · Accepted Answer

The payback period is calculated as the initial investment divided by the annual net cash inflow. The net cash inflow is $8,500 - $1,500 = $7,000. Thus, the payback period is $30,000 / $7,000 = 4.29 years.

A Piece of Equipment Costs $30,000, and Is Expected to Generate