Griffith Corporation
Griffith Corporation is considering an investment in a labor-saving machine.Information on this machine follows:
$\begin{array}{ll}
\text { Cost } & \$ 30,000 \
\text {Salvage value in five years } & \$0 \
\text { Estimatedlife } &5 years \
\text { Annual depreciation} &\$6,000 \
\text { Anmual reduction in existing costs } &\$8,000 \
\end{array}$

Refer to Griffith Corporation.What is the payback period on this investment?

Question

Griffith Corporation
Griffith Corporation is considering an investment in a labor-saving machine.Information on this machine follows:
$\begin{array}{ll}
\text { Cost  } & \$ 30,000  \
\text {Salvage value in five years } &  \$0 \
\text { Estimatedlife } &5 years \
\text { Annual depreciation} &\$6,000 \
\text { Anmual reduction in existing costs } &\$8,000 \
\end{array}$

Refer to Griffith Corporation.What is the payback period on this investment?

Quizplus · Accepted Answer

Payback period is the time required to recover the initial investment from the incremental cash inflows generated by the investment. In this case, the initial investment is $30,000, and the annual reduction in existing costs is $8,000. Using this information, we can calculate the payback period as follows:

Payback period = Initial investment / Annual incremental cash inflow
             = $30,000 / $8,000
             = 3.75 years

Therefore, the answer is C. The payback period for the investment is 3.75 years.

Griffith Corporation Griffith Corporation Is Considering an Investment in a Labor-Saving

Griffith Corporation
Griffith Corporation Is Considering an Investment in a Labor-Saving