Alto company is considering the purchase of a new equipment for $400,000. The eq

Question

Alto company is considering the purchase of a new equipment for $400,000. The equipment has no salvage value and net cash inflows for four years are:
Year 1: $100,000 Year 2: 150,000 Year 3: 100,000 Year 4: 200,000
What is the payback period for this investment?
A. 3.25 years B. 2 C. 2.75 D. 3 Alto company is considering the purchase of a new equipment for $400,000. The equipment has no salvage value and net cash inflows for four years are:
Year 1: $100,000 Year 2: 150,000 Year 3: 100,000 Year 4: 200,000
What is the payback period for this investment?
A. 3.25 years B. 2 C. 2.75 D. 3
Year 1: $100,000 Year 2: 150,000 Year 3: 100,000 Year 4: 200,000
What is the payback period for this investment?
A. 3.25 years B. 2 C. 2.75 D. 3

Explanation / Answer

Payback period = Year up to which cummulative cash flow is negative +(Cummulative cash flow of that year/ cash flow of next period)

cummulative cash flow up to year 3 = -400000+100000+150000+100000= -50000

Payback period = 3 + (50000/ 200000)

                       = 3+ .25

                     = 3.25 years

correct option is "A"

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.