Stone Mfg. is considering expanding operations by investing $300,000 in equipment. The equipment has a useful life of eight years, with no salvage value. Straight-line depreciation is used. Stone predicts that net income will increase $37,500 per year as a result of this strategy.
-Refer to the above data. The payback period for this investment is:

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual increase in net income. $300,000 / $37,500 = 8 years.

Stone Mfg Is Considering Expanding Operations by Investing $300,000 in Equipment