An investment project is expected to yield $10,000 in annual revenues,has $2,000 in fixed costs per year,and requires an initial investment of $5,000.Given a cost of goods sold of 60 percent of sales,what is the payback period in years?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual net cash inflow. The annual net cash inflow is calculated as revenues minus fixed costs and cost of goods sold. Here, it is $10,000 - $2,000 - (0.60 * $10,000) = $2,000. The payback period is $5,000 / $2,000 = 2.50 years.

An Investment Project Is Expected to Yield $10,000 in Annual