The cost of a new machine is $250,000.The machine has a five-year life and no salvage value.If the cash flow each year is equal to 25% of the cost of the machine,calculate the payback period for the project:
A)2.0 years
B)2.5 years
C)3.0 years
D)4.0 years

Question

Quizplus · Accepted Answer

The annual cash flow is 25% of $250,000, which is $62,500. The payback period is the time it takes for the cash flows to cover the initial investment. $250,000 / $62,500 = 4 years.

The Cost of a New Machine Is $250,000