Question

Gomez Corporation is considering two alternative investment proposals with the following data: Proposal X Proposal Y Investment $ 850,000 $ 468,000 Useful life 8 years 8 years Estimated annual net cash inflows for 8 years $ 125,000 $ 78,000 Residual value $ 40,000 $ - Depreciation method Straight-line Straight-line Required rate of return 14% 10% How long is the payback period for Proposal Y

Answer 1

6 years

Step-by-step explanation:

The payback period calculates how long it takes for the amount invested in a project to be recovered from the cumulative cash flow.

Payback period = amount invested/ cash flow

$468,000 / $78,000 = 6 years

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