Question

Boccardi Inc., has invested in new pasta manufacturing equipment at a cost of $48,000. The equipment has an estimated useful life of eight years. Estimated annual sales and operating expenses related to the pasta equipment follow:
Annual sales $ 88,000
Labor costs (72,000)
Depreciation of equipment (6,000)
Operating income $ 10,000
Income taxes (4,000)
Net income $ 6,000
The estimated payback of the investment in the pasta equipment is:
a. 3.0 years.
b. 4.0 years.
c. 6.0 years.
d. 8.0 years.

Answer 1

Answer:

b. 4.0 years.

Explanation:

The computation of the estimated payback period is given below:

The annual cash inflow is

= Net Income + Depreciation of equipment

= $6000 + $6000

= $12,000

Now The payback period of this investment is

= Investment ÷ Annual cash inflow

= $48,000 ÷ $12,000

= 4 years

hence, the option b is correct and the same should be considered