Question

The net initial investment for a piece of construction equipment is $2,900,000. Annual cash inflows are expected to increase by $500,000 per year. The equipment has an 10-year useful life. What is the payback period?.

Answer 1

Based on the information given the payback period is 5.80 years.

Payback period:

Using this formula

Payback​ period = Net initial investment  / Estimated annual cash inflow

Where:

Net initial investment=$2,900,000

Estimated annual cash inflow=$500,000

Let plug in the formula

Payback​ period=$2,900,000/$500,000

Payback​ period=5.80 years

Inconclusion the payback period is 5.80 years.

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