Ellis Retail
Ellis Retail is considering an investment in a delivery truck.Ellis has found a used truck that he can purchase for $8,000.He estimates the truck would last six years and increase his store's net cash revenues by $2,000 per year.At the end of six years,the truck would have no salvage value and would be discarded.Ellis will depreciate the truck using the straight-line method.
Refer to Ellis Retail.What is the payback period on the investment in the new truck?

Question

Quizplus · Accepted Answer

The payback period is the length of time it takes for the initial investment to be recovered through net cash inflows. In this case, the initial investment is $8,000 and the additional net cash inflow per year is $2,000. Therefore, the payback period is:
$8,000/$2,000 = 4 years
This means that the initial investment will be recovered after four years, making Option C the best choice.

Ellis Retail Ellis Retail Is Considering an Investment in a Delivery Truck.Ellis