Hunter Valley Horticulture Company provides flowers and other nursery products for decorative purposes in medium to large restaurants and businesses.The company has been investigating the purchase of a new specially equipped van for deliveries.The van has a value of $61 875 with a seven-year life.The expected additional cash inflows total $13 750 per year.What is the payback period on this investment?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the expected annual cash inflows. In this case, the payback period would be:
$61,875 ÷ $13,750 per year = 4.5 years
Since this is less than seven years (the expected life of the van), the investment is feasible. Choice B is the best answer.

Hunter Valley Horticulture Company Provides Flowers and Other Nursery Products