Malive Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $179,000. The annual cost savings if the new machine is acquired will be $35,000. The machine will have a 10-year life, at which time the terminal disposal value is expected to be zero. Malive Park is assuming no tax consequences. Malive Park has a 14% required rate of return. What is the payback period for the investment?

Question

Quizplus · Accepted Answer

Payback period is the length of time required to recoup the cost of an investment. It is calculated by dividing the cost of the investment by the annual cash inflow.

In this case, the cost of the investment is $179,000 and the annual cash inflow is $35,000.

Payback Period = Cost of Investment / Annual Cash Inflow
Payback Period = $179,000 / $35,000
Payback Period = 5.1 years

Therefore, the correct choice is B.

Malive Park Department Is Considering a New Capital Investment