Determine the payback period from the following. Investment equipment with an eight-year useful life costs $1 000 000. Annual cash flows increase by $200 000 each year. The payback period is:

A) 5 years.
B) 6 years.
C) 7 years.
D) 8 years.

Question

Tyler Pittaway · Accepted Answer

Final Answer : A, Explanation :  The payback period is calculated by adding the annual cash flows until the initial investment is recovered. The cash flows increase by $200,000 each year, so the cumulative cash flow each year would be: Year 1: $200,000, Year 2: $400,000 (total $600,000), Year 3: $600,000 (total $1,200,000). Therefore, the investment is fully recovered in just before the end of Year 3, making the closest full year for payback 5 years.

Determine the payback period from the following. Investment equipment with an eight-year useful life costs $1 000 000. Annual cash flows increase by $200 000 each year. The payback period is:

A) 5 years.
B) 6 years.
C) 7 years.
D) 8 years.

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Learning Objectives

Related questions

Determine the payback period from the following. Investment equipment with an eight-year useful life costs $1 000 000. Annual cash flows increase by $200 000 each year. The payback period is:A) 5 years.B) 6 years.C) 7 years.D) 8 years.

Definitions

Learning Objectives

Learning Objectives

Related questions

Determine the payback period from the following. Investment equipment with an eight-year useful life costs $1 000 000. Annual cash flows increase by $200 000 each year. The payback period is:

A) 5 years.
B) 6 years.
C) 7 years.
D) 8 years.