Use the following information to answer the next two questions. The Premier Hotel is appraising the merit of a proposed investment in a vending machine with an eight year life. The investment will require an initial outlay of $16,000 and provide increased cash inflows of $17,000 per annum and generate increased cash outflows of $14,000 per annum. The vending machine will be sold off for $2,000 in eight year's time.
-What is the payback period for the vending machine investment?

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the initial investment to be recovered from the cash inflows. In this case, the initial investment is $16,000 and the annual cash inflows are $17,000. So, the payback period is 16,000/17,000 = 0.94 years, or 5 years and 4 months.

Use the Following Information to Answer the Next Two Questions