Russell Corp.is considering the purchase of a new machine for $76,000.The machine would generate an annual cash flow of $23,214 for five years.At the end of five years, the machine would have no salvage value.The company's cost of capital is 12 percent.The company uses straight-line depreciation with no mid-year convention. What is the payback period in years for the machine approximated to two decimal points, assuming no taxes are paid?

Question

Quizplus · Accepted Answer

To find the payback period, we need to calculate the time it takes to recover the initial investment.

Annual cash flow = $23,214
Initial investment = $76,000
Payback period = Initial investment / Annual cash flow

Payback period = $76,000 / $23,214 = 3.27 years (approximated to two decimal points)

Therefore, the best choice is C.