Question

The management of Lanzilotta Corporation is considering a project that would require an investment of $228,000 and would last for 6 years. The annual net operating income from the project would be $108,000, which includes depreciation of $29,000. 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

Answer:The investment cost is $280,000

The expected useful life of the investment is 66 years

The annual net operating income is $114,000

The annual depreciation expense is 31,000

The annual cash inflows for this project will include net operating income and depreciation expense (non-cash item) is $145,000 ($114,000 + $31,000)

The payback period formula is used to calculate the period

Payback Period = Investment Cost / net cash inflow per year

=$280,000 / $145,000

= 1.93 years

Step-by-step explanation: