(Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that costs $350,000, that will have a useful life of eight years, and that will have a salvage value of $25,000. If this machine is purchased, a similar, old machine will be sold at a salvage value of $40,000. The anticipated yearly revenues and expenses associated with the new machine are: All of the revenues and expenses except depreciation are for cash. The company's required rate of return is 12%. The annual cash flows occur uniformly throughout the year.
-The payback period,to the nearest tenth of a year,of this investment is:

Question

(Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that costs $350,000, that will have a useful life of eight years, and that will have a salvage value of $25,000. If this machine is purchased, a similar, old machine will be sold at a salvage value of $40,000. The anticipated yearly revenues and expenses associated with the new machine are:  All of the revenues and expenses except depreciation are for cash. The company's required rate of return is 12%. The annual cash flows occur uniformly throughout the year. 
-The payback period,to the nearest tenth of a year,of this investment is:

Quizplus · Accepted Answer

The payback period is the amount of time it takes for an investment to generate enough cash flow to cover the initial investment. In this case, the initial investment is $10,000 and the annual cash flow is $3,125. Therefore, the payback period is $10,000/$3,125 = 3.2 years.

(Ignore Income Taxes in This Problem