The A Justed Company is evaluating an investment proposal using the payback method.Cash inflows are expected to be $3000 in year 1,$5000 in year 2,$4000 in year 3,and $6000 in year 4.The initial investment required is $6000.Assuming even cash inflows within each year what is the payback period?

Question

Quizplus · Accepted Answer

To calculate the payback period, we need to determine how long it will take for the accumulated cash inflows to equal the initial investment of $6000.

1. In year 1, we receive $3000 of cash inflow, leaving a remaining investment of $3000 ($6000 - $3000 = $3000). 
2. In year 2, we receive $5000 of cash inflow, leaving a remaining investment of -$2000 ($3000 - $5000 = -$2000). This means that our investment has been fully paid back in year 2.

Therefore, the payback period is 2 years.

Answer choices A (1.33 years), C (2 years), and D (3 years) are all incorrect, as the calculations for these choices do not result in the investment being fully paid back.

The a Justed Company Is Evaluating an Investment Proposal Using