Answer:
$520,000 / $235,000 = 2.2 years
$380,000 / $105,000 = 3.6 years
Explanation:
Payback period calculates how long it takes to recover the amount invested in a project from its cumulative cash flows
Payback period = amount invested / cash flow
Cash flow = net income + depreciation expense
Depreciation expense using the straight line depreciation expense = (cost of asset - salvage value) / number of years
A. ($520,000 - $10,000) / 6 = $85,000
cash flow = $150,000 + $85,000 = $235,000
$520,000 / $235,000 = 2.2 years
B. ($380,000 - $20,000) / 8 = $45,000
$45,000 + $60,000 = $105,000
$380,000 / $105,000 = 3.6 years
