Asked by Mylene Salazar on Jul 09, 2024
Verified
What is the payback period closest to?
A) 2.8 years.
B) 4.2 years.
C) 2.1 years.
D) 2.3 years.
Payback Period
The time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment itself.
Straight-line Basis
Straight-line basis is a method of calculating depreciation and amortization, wherein an asset's cost is evenly spread over its useful life.
Cash Flow
A measurement of the net amount of cash and cash-equivalents being transferred into and out of a business.
- Familiarize oneself with the foundational aspects of capital budgeting and the distinct methods employed for the scrutiny of investment projects.
- Access information on the simple rate of return method and its usage.
Verified Answer
MC
Macar ColomaJul 11, 2024
Final Answer :
A
Explanation :
The payback period is calculated by dividing the initial investment by the annual cash flow. Here, the initial investment is $125,000 and the annual cash flow is $45,000. Thus, the payback period is $125,000 / $45,000 = 2.777... years, which is closest to 2.8 years.
Learning Objectives
- Familiarize oneself with the foundational aspects of capital budgeting and the distinct methods employed for the scrutiny of investment projects.
- Access information on the simple rate of return method and its usage.