Answer:
Initial outlay = $250,000
Annual cash inflow = 25% x $250,000 = $62,500 per annum
Payback period = Initial outlay
Annual cash inflow
= $250,000
$62,500
= 4 years
Explanation:
In this respect, there is need to calculate the annual cash inflow, which is 25% of initial outlay. Then, we will divide the initial outlay by the annual cashflow. This gives the payback period of the machine.
The payback period for this particular project will be equal to 4 years, the investment made will be recovered by the end of 4 years as 25% of the cost of the machine is recovered each year.
The payback period talks about the period of time for the original cost of a project to be recovered from the additional earnings of the project itself.
It can be calculated in this manner:
Payback period =
[tex]\dfrac{ \rm\,Cash\,Outlay\,of\,the\, Project}{ \rm\,Annual\,Cashflows}[/tex]
Here, in this case, it's given that the cash flow each year is equal to 25% of the cost of the machine:
= 25% of 2,50,000
= $ 62,500
Payback period= [tex]\dfrac{ \rm\,Cash\,Outlay\,of\,the\, Project}{ \rm\,Annual\,Cashflows}[/tex]
[tex]= \dfrac{2,50,000}{62500}[/tex]
= 4 years.
Hence, the payback period for this particular project = 4 years.
To learn more about the payback period, refer to the link:
https://brainly.com/question/23149718
