Question

Binder Corp. has invested in new machinery at a cost of $1,450,000. This investment is expected to produce cash flows of $640,000, $720,000, $900,000, and $950,000 over the next four years. What is the payback period for this project?

Group of answer choices
A)2.10 years
B)2.13 years
C)2.11 years
D)2.12 years

Answer 1

The payback period for the investment in new machinery is approximately 5.424 months.

Step-by-step explanation:

The payback period for the investment in new machinery can be calculated by dividing the initial cost of the investment by the annual cash flows. In this case:

Payback period = Initial Cost / Annual Cash Flows

Therefore, the payback period for this project is:

Payback period = $1,450,000 / ($640,000 + $720,000 + $900,000 + $950,000) = $1,450,000 / $3,210,000 ≈ 0.452 years

Since the payback period is less than 1 year, we convert it to months:

0.452 years × 12 months/year ≈ 5.424 months

Therefore, the payback period for this project is approximately 5.424 months.