Question

It will cost $7,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period

Answer 1

It will take 2 years and 344 days to cover for the initial investment.

Step-by-step explanation:

Giving the following information:

Initial investment= $7,000

Cash flow year 1 trough 3= $3,600

The payback period is the time required to cover for the initial investment:

Year 1= 3,600 - 7,000= -3,400

Year 2= 3,600 - 3,400= 200

To be more accurate:

(3,400/3,600)*365= 344

It will take 2 years and 344 days to cover for the initial investment.