Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: Using the averaging method, the payback period for the investment in the oven would be:

Question

Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows:  Using the averaging method, the payback period for the investment in the oven would be:

Quizplus · Accepted Answer

Payback period = Initial investment ÷ Average annual cash inflow
Payback period = $14,000 ÷ [($8,000 + $6,000 + $5,000 + $6,000 + $5,000) ÷ 5] = $14,000 ÷ 6 = 2.33

Mr J's Bagels Invested in a New Oven for $14,000