Speedy Print Shop bought a new high-speed photo copier for customers to be able to bring in their digital pictures to make high-quality copies. Its useful life is 6 years. The copier cost $7,740 and will generate annual cash inflows of $2,150. The residual value of the copier is $1,320. The payback period in years is closest to

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to find how long it will take for the accumulated cash inflows to equal the initial cost of the copier.

Year 1: $2,150
Year 2: $2,150
Year 3: $2,150
Year 4: $2,150
Year 5: $2,150
Year 6: $2,150 + $1,320 (residual value) = $3,470

Total cash inflows after Year 6: $14,120
Payback period = $7,740 (initial cost) / $14,120 (total cash inflows) = 0.547 years

Therefore, the payback period is 0.547 + 6 = 6.547 ≈ 3.60 years, which is closest to answer choice B.

Speedy Print Shop Bought a New High-Speed Photo Copier for Customers