Question

The management of L Corporation is considering a project that would require an investment of $225,000 and would last for 6 years. The annual net operating income from the project would be $115,000, which includes depreciation of $32,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): Multiple Choice 0 2.0 years 0 1.5 years 0 1.6 years 0 1.4 years

Answer 1

payback period = 1.5 years

so correct option is b. 1.5 years

Step-by-step explanation:

given data

investment = $225,000

time = 6 year

annual net operating income = $115,000

depreciation = $32,000

to find out

payback period of the project is

solution

we know that payback period is express as

payback period =
`(initial\ investment)/(annual\ net\ cash\ flow)` ...................1

here annual net cash flow is = $115,000 + $32,000 = $147000

so from equation 1

payback period =
`(initial\ investment)/(annual\ net\ cash\ flow)`

put value here

payback period =
`(225000)/(147000)`

payback period = 1.5 years

so correct option is b. 1.5 years