Question

The management of Lanzilotta Corporation is considering a project that would require an investment of $260,000 and would last for 6 years. The annual net operating income from the project would be $110,000, which includes depreciation of $17,000. The scrap value of the project's assets at the end of the project would be $15,000. The cash inflows occur evenly throughout the year. The payback period of the project is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

Answer 1

2.04 years

Step-by-step explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

Cash flow = net income + depreciation

$110,000 + $17,000 = $127,000

Payback = $260,000 / $127,000 = 2.04