Question

The management of Lanzilotta Corporation is considering a project that would require an investment of $263,000 and would last for 8 years The annual net operating income from the project would be $66,000, which includes depreciation of $31,000. The scrap value of the projects assets at the end of the project would be $15,000 The cash inflows occur evenly throughout the year. The payback period of the project is closest to ignore income taxes) Mutiple Choike 3 8 years 26 years 27 years の 8 0 Multiple Choice 23 3.8 years 3 26 years 27 yeers 40 years 23 of 30111 Next >

Answer 1

Answer:

• The payback period of the project:

2,7 years

Explanation:

The payback period it's a good indicator to compare different projects, along with others ratios, ti gives the break-even point on time of the project.

It would use the cash flow of the project, it means, the operating income plus the depreciations, one of its limitations is that it does not consider the time value of money, The formula it's Initial Investment / Cash Flow per Year.

• This case: $263,000 / ($66,000 + $31,000) = 2,71 Years.