Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $31,000 and will have a 6-year useful life and a $4,300 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,300 per year. The cost of these prescriptions to the pharmacy will be about $25,600 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

Question

Quizplus · Accepted Answer

The payback period is the amount of time it takes for an investment to generate enough cash flow to cover the initial investment. In this case, the initial investment is $31,000. The annual cash flow is $32,300 - $25,600 = $6,700. So, the payback period is $31,000 / $6,700 = 4.6 years.

Buy-Rite Pharmacy Has Purchased a Small Auto for Delivering Prescriptions