Question

(TCO C) Natal Technologies is developing a superior ultrasound machine for which it is required to invest $800,000. Based on the company's analysis, the product will generate $200,000 from the first year till perpetuity. According to this, the payback period is ________.

Answer 1

The payback period is 4 years.

Step-by-step explanation:

Giving the following information:

Initial investment= $800,000

Cash flow= $200,000

The payback period is the time required to cover the initial investment.

Year 1= 200,000 - 800,000= -600,000

Year 2= 200,000 - 600,000= -400,000

Year 3= 200,000 - 400,000= -200,000

Year 4= 200,000 - 200,000= 0

The payback period is 4 years.