Question

The net initial investment for a piece of construction equipment is​ $2,000,000. Annual cash inflows are expected to increase by​ $400,000 per year. The equipment has an​ 8-year useful life. What is the payback​ period?

Answer 1

Answer:

payback​ period is 5 years

Explanation:

given data

net initial investment = $2000000

annual cash inflow = $400000

useful life = 8 year

to find out

payback​ period

solution

we know here initial investment of equipment and cash inflow increase

so here payback period will be express as

payback​ period = net investment  / cash inflow   ..............1

put here value in equation 1

payback​ period = net investment  / cash inflow  

payback​ period = 2000000 / 400000

payback​ period = 5

so payback​ period is 5 years