Pinero is considering a $600,000 investment in new equipment that is anticipated to produce the following net cash inflows:
If cash flows occur evenly throughout a year,the equipment's payback period is:

Question

Pinero is considering a $600,000 investment in new equipment that is anticipated to produce the following net cash inflows: 
If cash flows occur evenly throughout a year,the equipment's payback period is:

Quizplus · Accepted Answer

To calculate the payback period, we need to divide the initial investment by the average annual net cash inflow.

Initial investment = $600,000

Average annual net cash inflow = ($80,000 + $120,000 + $160,000 + $200,000) ÷ 4 = $140,000

Payback period = $600,000 ÷ $140,000 = 4.29 years or 4 years and 3 months (rounded up to the next month).

Therefore, the best choice is B) 4 years, 3 months.

Pinero Is Considering a $600,000 Investment in New Equipment That