The investment's payback period is 3 years
Given here the, Immediate Initial Investment is $27,000 and expected Annual Cash Inflow is $9,000 and the cash inflows are constant for couple of years.
Now, we calculate Payback period by the formula
Pay back period = Initial Investment / Annual Cash Inflow
On putting the values we get Payback period = $27,000 / $9,000
Payback period = 3 years
Thus, the calculated investment's payback period is 3 years.
A equipment, facility, or other investment has created enough net revenue to cover its investment expenditures when it reaches its payback period. The payback period is a metric used to evaluate, if any, the short- and long-term advantages of the suggested energy solutions. Logically, energy systems with quicker payback times are more advantageous from an economic standpoint than those with slower payback times.
The net amount that enters and leaves your organisation over the course of a time period is known as cash flow. Typically, this time frame is a month, quarter, or year. Operating operations, financing activities, and investment activities are the three main sources of cash flows.
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