Mr.J's Bagels invested in a new oven for $14,000.The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: $$\begin{array} { l l l l l }
\text { Year } 1 & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } & \text { Year 5 } \
\$ 8,000 & \$ 6,000 & \$ 5,000 & \$ 6,000 & \$ 5,000
\end{array}$$ Using the averaging method,the payback period for the investment in the oven would be:

Question

Mr.J's Bagels invested in a new oven for $14,000.The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows: $$\begin{array} { l l l l l } 
\text { Year } 1 & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } & \text { Year 5 } \
\$ 8,000 & \$ 6,000 & \$ 5,000 & \$ 6,000 & \$ 5,000
\end{array}$$ Using the averaging method,the payback period for the investment in the oven would be:

Quizplus · Accepted Answer

The averaging method calculates the payback period by dividing the initial investment by the average annual cash inflow. The total cash inflow over 5 years is $8,000 + $6,000 + $5,000 + $6,000 + $5,000 = $30,000. The average annual cash inflow is $30,000 / 5 = $6,000. The payback period is the initial investment ($14,000) divided by the average annual cash inflow ($6,000), which equals 2.33 years, rounded to 2.3 years.

MrJ's Bagels Invested in a New Oven for $14,000 Using the Averaging Method,the Payback Period for the Investment in Reduced