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astraxan [27]
3 years ago
10

It will cost $4,000 to acquire a small ice cream cart. Cart sales are expected to be $3,200 a year for five years. After the fiv

e years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart?
Business
1 answer:
Anna [14]3 years ago
5 0
Cost = $4,000
Revenues = $3,200 per year
Life = 5 years

Payback period calculation:
Year -----   Cash flow -------- Investment
Yr 0 -----               ------------ -4,000
Yr 1 ------   3,200  -----------  -800
Yr 2 ------   3,200 -------------- 0

Payback period lies between year 1 and 2.

Therefore,
Payback period = 1+ 800/3200 = 1+0.25 = 1.25 years
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