Question

Harvey Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project (Ignore income taxes.):

Answer 1

3 years

Step-by-step explanation:

The formula to compute the payback period is shown below:

= Initial investment ÷ Net cash flow

where,

Initial investment is $450,000

And, the net cash flow = annual net operating income + depreciation expenses

= $105,000 + $45,000

= $150,000

Now put these values to the above formula

So, the value would equal to

= ($450,000) ÷ ($150,000)

= 3 years