Question

Oriental Corporation has gathered the following data on a proposed investment project: Investment in depreciable equipment $ 650,000 Annual net cash flows $ 66,000 Life of the equipment 20 years Salvage value $ 0 Discount rate 7 % The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment would be:

Answer 1

9.85 years

Step-by-step explanation:

The formula and the computation of the payback period is shown below

Payback period = Initial Investment ÷ Annual net cash flows

= $650,000 ÷ $66,000

= 9.85 years

By dividing the initial investment with the annual net cash flows we can get the payback period and the same is shown above