Question

It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period of this investment?

Answer 1

Answer: 1.67 years

Step-by-step explanation:

Pay back period calculates the amount of years the cumulative cash flows from an investment equals the amount of money invested.

The table attached explains how the payback was calculated.

The $3600 cost of the cart would be recouped between the first and second years. Therefore, it would be calculated as 1 year + $2400 / $3600 = 1.67 years

I hope my answer helps you.