Question

Mr. J's Bagels invested in a new oven for $14,000. The oven reduced the amount of time for baking which increased production and sales for five years by the following amounts of cash inflows:

Year 1: $8,000
Year 2: $6,000
Year 3: $5,000
Year 4: $6,000
Year 5: $5,000
The payback period for the investment in the oven would be:
a: 5 years
b: 2.3 years
c: 2.0 years
d: 0.5 years

Answer 1

c: 2.0 years

Step-by-step explanation:

The computation of the payback period is shown below:

Since initial investment is $14,000

And, if we add the first two cash inflows i.e.

= $8,000 + $6,000

= $14,000

So, it is equivalent to the initial investment made

So, this means the investment amount payback in 2 years

Therefore the option c is correct