Question

It will cost $5,000 to acquire a small ice cream cart. Cart sales are expected to be $1,800 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart

Answer 1

Answer:

"1.64 years" is the appropriate solution.

Explanation:

Given:

After 1 year,

Received amount will be:

= $1,800

Now,

After 1 year,

Remaining amount will be:

= $5000-1800$

= $3200$ ($)

In next year,

The required time to recover $3,200 will be:

= $\frac{3200}{5000}$

= $0.64$

hence,

The total payback period will be:

= $1+0.64$

= $1.64 \ years$