Question

Joetz Corporation has gathered the following data on a proposed investment project (Ignore income taxes.): Investment required in equipment $ 30,000 Annual cash inflows $ 6,000 Salvage value of equipment $ 0 Life of the investment 15 years Required rate of return 10% The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period for the investment is:

Answer 1

5 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

$30,000 / $6,000 = 5 years