A piece of equipment costs $24 000. It is expected to generate $7500 of annual cash revenues and $1500 of annual cash expenses. The disposal value at the end of the estimated 10-year life is $2000. What is the payback period?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual net cash inflow. The net cash inflow is $7500 (revenues) - $1500 (expenses) = $6000 per year. Thus, the payback period is $24000 / $6000 = 4.00 years.

A Piece of Equipment Costs $24 000