Below are two potential investment alternatives:
Assume straight-line amortization in all computations, and ignore income taxes.
-The payback period for case Y is
A) 0.44 years.
B) 3.00 years.
C) 2.25 years.
D) 2.40 years.

Question

Below are two potential investment alternatives:
  Assume straight-line amortization in all computations, and ignore income taxes.
-The payback period for case Y is
A) 0.44 years. 
B) 3.00 years. 
C) 2.25 years. 
D) 2.40 years.

Quizplus · Accepted Answer

To calculate the payback period for case Y, we need to determine how long it takes to recover the initial investment. The initial investment for case Y is $450,000 and the annual cash inflows are $200,000.

We can calculate the payback period as follows:

Payback period = Initial Investment / Annual Cash Inflows

Payback period = $450,000 / $200,000

Payback period = 2.25 years

Therefore, the payback period for case Y is 2.25 years.

Since we do not have any other information about the investments, we cannot determine which investment is the best choice based on the payback period alone. Other factors, such as the net present value (NPV) and internal rate of return (IRR), would need to be considered.

Below Are Two Potential Investment Alternatives