Ambinu 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 $113,750 with a seven-year life.The expected additional cash inflows are $32,500 per year.What is the payback period for this investment?

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to divide the initial investment by the expected annual cash inflows.

Payback period = Initial investment / Expected annual cash inflows

Payback period = $113,750 / $32,500 per year 
Payback period = 3.5 years

Therefore, the payback period for this investment is 3.5 years, so the best choice is B.

Ambinu Flower Company Provides Flowers and Other Nursery Products for Decorative