The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value.The company has projected the following annual cash flows for the investment. $\begin{array} { l r }
\text { Year } & \text { Cash Inflows } \
1 & \$ 120,000 \
2 & \$ 60,000 \
3 & \$ 40,000 \
4 & \$ 40,000 \
5 & \$ 40,000 \
\text { Total } & \$ 300,000
\end{array}$ Assuming that the cash inflows occur evenly over the year,what is the payback period for the investment? (Ignore income taxes in this problem.)

Question

The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value.The company has projected the following annual cash flows for the investment. $\begin{array} { l r } 
\text { Year } & \text { Cash Inflows } \
1 & \$ 120,000 \
2 & \$ 60,000 \
3 & \$ 40,000 \
4 & \$ 40,000 \
5 & \$ 40,000 \
\text { Total } & \$ 300,000
\end{array}$ Assuming that the cash inflows occur evenly over the year,what is the payback period for the investment? (Ignore income taxes in this problem.)

Quizplus · Accepted Answer

To find the payback period, we need to determine how long it takes for the company to recoup its initial investment. We do this by adding up the cash inflows until we reach the initial investment.

- Year 1: $120,000
- Year 2: $60,000 + $120,000 = $180,000
- Year 3: $40,000 + $180,000 = $220,000
- Year 4: $40,000 + $220,000 = $260,000
- Year 5: $40,000 + $260,000 = $300,000

The payback period is the amount of time it takes to reach the initial investment, which is 3 years. Therefore, the answer is C.

The Keego Company Is Planning a $200,000 Equipment Investment That