Question

a ompany is considering a capital investment of $45,000 in new equipment which will improve production & increase cash flows by $15,000 per year for 6 years/ The payback period is

Answer 1

Answer:

3 years

Explanation:

The payback period is reached when the company's cash flow resulting from an investment equal the amount of that initial investment. Since, in this case, no expected rate of return is mentioned, the payback period can be calculated without interest as follows:

$payback = \frac{investment}{cash\ flow/year} \\payback = \frac{\ 45,000}{\ 15,000} \\payback = 3\ years$