Pearl Manufacturing Company provides glassware machines for major department store retailers.The company has been investigating a new piece of machinery for its production department.The old equipment has a remaining life of five years and the new equipment has a value of $239,400 with a five-year life.The expected additional cash inflows are $63,000 per year.What is the payback period for this investment?

Question

Quizplus · Accepted Answer

To calculate the payback period, first, we need to find out how long it will take to recover the initial investment.

Initial investment = $239,400
Expected cash inflow = $63,000 per year

Payback period = Initial investment / Expected annual cash inflow

Payback period = $239,400 / $63,000 = 3.8 years

Therefore, the best choice is C, with a payback period of 3.8 years.

Pearl Manufacturing Company Provides Glassware Machines for Major Department Store