Jericho Corporation is considering the purchase of new equipment costing initially $96,000.The equipment has an estimated life of 6 years with no salvage value.Straight-line depreciation is to be used.Net annual after tax cash flow is estimated to be $31,200 for 6 years.The payback period is:

Question

Quizplus · Accepted Answer

Payback period is the length of time it takes for a project to recover its initial cost. To calculate the payback period, we need to divide the initial cost by the net annual after tax cash flow.

Payback period = Initial cost / Annual after tax cash flow

Payback period = $96,000 / $31,200 = 3.0769 years

Therefore, the payback period for the equipment is 3.0769 years. Option B is the correct answer as it provides the right payback period for the investment.

Jericho Corporation Is Considering the Purchase of New Equipment Costing