Question

Tim’s Nail World may need to invest $270,000 to purchase a new nail machine. The managerial accountant reported that the new nail machine will generate $90,000 in net cash flows each year.What is the payback period for the new nail machine?

Answer 1

Answer: 3 years

Explanation: The payback period is the number of years it will take a person with a loan to payback such loan.

Tim's nail world invested $270,000 with yearly cash flow of $90,000

using the below formula:

Payback period = invested amount/ net contraflows

= 270,000/90,000

payback period = 3

payback period is 3 years