Question

"Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $100,000. The equipment will have an initial cost of $400,000 and have a 5-year life. If the salvage value of the equipment is estimated to be $75,000, what is the payback period

Answer 1

4 years

Step-by-step explanation:

Payback period calculates the amount of the time it takes for the amount invested in a project to be recovered from the cumulative cash flow.

Payback period = amount invested / annual cash flows

= $400,000 / $100,000 = 4 years

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