Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1, LO13-6]

Business

1 answer:

andrew-mc [135]3 years ago

5 0

Answer:

4 years

Yes

Explanation:

Payback period calculates the amount of time it takes to recover the amount invested in a project to be recovered from the cumulative cash flow.

Cash inflow for the period = Net income + Net cash deductions (depreciation expenses)

$60,800 + $19,200 = $80,000

Payback period = amount invested / cash inflow

$320,000 / $80,000 = 4 years

If the payback period is five years or less, the project would be accepted because the amount invested would be recovered in 4 years. Therefore, the company would purchase the new games.

I hope my answer helps you

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