Question

Speedy Print Shop bought a new photocopier to offer customers the opportunity to make high-quality copies out of their digital pictures. Its useful life is 6 years. The copier cost $7,740 and will generate annual cash inflows of $2,150.
The residual value of the copier is $1,320. The payback period in years is closest to:

A) 2.99. B) 4.21. C) 2.23. D) 3.60.

Answer 1

Answer:

Option (D) is correct.

Explanation:

The payback period is the amount of time required to get your investment back.

Shorter the payback period, the better it is for the investor.

Given that,

Useful life = 6 years

Copier cost = $7,740

Generate annual cash inflows = $2,150

Therefore,

Payback period = Initial investment ÷ Annual cash inflow

payback period = $7,740 ÷ $2,150

                          = 3.60 years