Payback: Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the payback period for this project? If their acceptance period is five years, will this project be accepted?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow: $5 million / $1.2 million = 4.17 years. Since 4.17 years is less than the acceptance period of five years, the project will be accepted.

Payback: Carmen Electronics Bought New Machinery for $5 Million