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Young Corporation is considering purchasing equipment that costs $80,000 and is expected to provide the following cash inflows over its five-year useful life: Year Cash inflow 1 $ 18,000 2 22,000 3 24,000 4 16,000 5 9,000 What is the payback period of this investment project

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facundobuzzetti

Answer:

It will take 4 years to cover the initial investment.

Explanation:

Giving the following information:

Initial investment= $80,000

Cash flows:

1 $ 18,000

2 22,000

3 24,000

4 16,000

5 9,000

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

Year 1= 18,000 - 80,000= -62,000

Year 2= 22,000 - 62,000= -40,000

Year 3= 24,000 - 40,000= -16,000

Year 4= 16,000 - 16,000= 0

It will take 4 years to cover the initial investment.

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