An investment project is expected to yield $12,000 in annual revenues,has $3,000 in fixed costs per year,and requires an initial investment of $6,000.Given a cost of goods sold of 50 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. Here, the annual net cash inflow is calculated as follows: Annual revenues ($12,000) - Fixed costs ($3,000) - Variable costs (50% of $12,000 = $6,000) = $3,000. Therefore, the payback period is $6,000 / $3,000 = 2 years.

An Investment Project Is Expected to Yield $12,000 in Annual