Gulf Coast Parks Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $72,096. The annual cost savings if the new machine is acquired will be $20,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be zero. Gulf Coast Parks is assuming no tax consequences. Gulf Coast Parks has a 10% required rate of return. What is the payback period on this investment?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. Here, $72,096 / $20,000 = 3.6 years.

Gulf Coast Parks Department Is Considering a New Capital Investment