Question

Pro-Am Audio is a company that is contracted to DJ private events. Due to a recent increase in bookings, Pro-Am is considering the purchase of another mobile DJ unit. Pro-Am uses the payback method to evaluate its investments. The mobile DJ unit will cost $12,000, has a useful life of 10 years, and will generate $2,000 in net cash inflows per year. The residual value of the unit is $1,000. What is the payback period for the mobile DJ unit?

Answer 1

6 years

Step-by-step 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.

Payback period = amount invested / cash flows

$12,000 / $2,000 = 6 years

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