Young Corporation is considering purchasing equipment that costs $80,000 and is expected to provide the following cash inflows over its five-year useful life: $$\begin{array} { l r }
\text { Year } & \text { Cash Inflow } \
1 & \$ 18,000 \
2 & \$ 22,000 \
3 & \$ 24,000 \
4 & \$ 16,000 \
5 & \$ 9,000
\end{array}$$ What is the payback period of this investment project? (Rounded to the nearest year.)

Question

Young Corporation is considering purchasing equipment that costs $80,000 and is expected to provide the following cash inflows over its five-year useful life: $$\begin{array} { l r } 
\text { Year } & \text { Cash Inflow } \
1 & \$ 18,000 \
2 & \$ 22,000 \
3 & \$ 24,000 \
4 & \$ 16,000 \
5 & \$ 9,000
\end{array}$$ What is the payback period of this investment project? (Rounded to the nearest year.)

Quizplus · Accepted Answer

The payback period is calculated by adding the cash inflows until the initial investment is recovered. Summing the cash inflows: Year 1: $18,000, Year 2: $22,000, Year 3: $24,000, Year 4: $16,000. By the end of Year 3, the total inflow is $64,000, which is not enough to cover the initial investment of $80,000. By the end of Year 4, the total inflow is $80,000, which matches the initial investment. Therefore, the payback period is 4 years.

Young Corporation Is Considering Purchasing Equipment That Costs $80,000 and Is