Question

it will cost $15,000 to acquire a used food truck that is expected to produce cash inflows of $8,500 per year for five years. after the five years, the truck is expected to be worthless. what is the payback period?

Answer 1

The payback period for a used food truck costing $15,000 with an annual cash inflow of $8,500 is 1.76 years that approximately 2 years.

Step-by-step explanation:

The payback period is the amount of time it takes for an investment to generate an amount of cash equal to the initial investment. In this case, the student is asking about the payback period for a used food truck that costs $15,000 and is expected to produce cash inflows of $8,500 per year for five years before becoming worthless. To calculate the payback period, you divide the initial investment by the annual cash inflow.

The payback period for the food truck would be $15,000 ÷ $8,500 = 1.7647 years.

Since you cannot have a fraction of a year in terms of cash flow, typically the payback period is rounded up to the next whole year, therefore, the payback period for the food truck would be approximately 2 years.