Question

You are given the following financial data.

Investment cost at n=0: $26,000.
Useful life: 8 Years
Salvage value (at the end of 8 years): $6,000
Annual revenues: $22,000 per year
Annual expenses including tax: $9,000 per year
Simple payback occurs at the end of year:
Select one:
a.1
b.2
c.3
d.4
e.8

Answer 1

The simple payback period is calculated by dividing the investment cost by the annual net cash flow, which in this case is 2 years.

Step-by-step explanation:

The student is asking how to calculate the simple payback period for an investment based on the given financial data. The simple payback period is the length of time required to recover the initial investment cost through the net cash flows that the investment generates. In this case, the investment cost is $26,000, the annual revenue is $22,000, and the annual expenses are $9,000, resulting in a net annual cash flow of $13,000 ($22,000 - $9,000). The simple payback period is calculated by dividing the initial investment by the annual net cash flow, which gives us:

Simple Payback Period = Investment Cost / Annual Net Cash Flow

Simple Payback Period = $26,000 / $13,000 per year = 2 years

Therefore, the correct answer is that simple payback occurs at the end of year b. 2.