Blanshan Company is considering the purchase of a computer-aided manufacturing system.The after-tax cash benefits/savings associated with the system are as follows:
-The system will cost $9,000,000 and will last ten years.The company's cost of capital is 12 percent.
What is the payback period for the computer-aided manufacturing system?

Question

Blanshan Company is considering the purchase of a computer-aided manufacturing system.The after-tax cash benefits/savings associated with the system are as follows:  
-The system will cost $9,000,000 and will last ten years.The company's cost of capital is 12 percent.
What is the payback period for the computer-aided manufacturing system?

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. If the system costs $9,000,000 and lasts ten years, assuming equal annual cash inflows, the payback period would be $9,000,000 divided by the annual cash inflow. Without specific cash inflow data, the typical assumption is that the payback period is less than the lifespan, and 6 years is a reasonable estimate given the options.

Blanshan Company Is Considering the Purchase of a Computer-Aided Manufacturing