Springtime Flower Company provides flowers and other nursery products for decorative purposes in medium to large sized restaurants and businesses. The company has been investigating the purchase of a new specially equipped van for deliveries. The van has a value of $123,750 with a seven-year life. The expected additional cash inflows are $27,500 per year. What is the payback period on this investment?

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to determine how long it will take to recover the initial investment. 
Payback Period = Initial Investment ÷ Annual Cash Inflows 
Payback Period = $123,750 ÷ $27,500 = 4.5 years. Therefore, the payback period on this investment is 4.5 years.

Springtime Flower Company Provides Flowers and Other Nursery Products for Decorative