The net initial investment for a piece of construction equipment is $1 000 000.Annual cash inflows are expected to increase by $200 000 per year.The equipment has an eight-year useful life.The payback period is ______________:

Question

Quizplus · Accepted Answer

The payback period is 5 years because the cumulative cash inflows reach $1,000,000 in the fifth year: $200,000 (Year 1) + $400,000 (Year 2) + $600,000 (Year 3) + $800,000 (Year 4) + $1,000,000 (Year 5) = $3,000,000.

The Net Initial Investment for a Piece of Construction Equipment