If a food cart costs $4,500 and is expected to return $1,750 a year for three years and then be worthless, its payback period can be computed as 31 months. Therefore, the option B holds true.
The payback period for an asset can be computed or calculated by dividing the annual return of the asset and then multiplying the total until the actual cost is derived.
From the given information, the monthly return of the food cart is $145.33. If this cost is divided by the total cost incurred to purchase the food cart, then, Payback Period = 4500 / 145.33 = 31 months.
Therefore, the option B holds true and states regarding the significance of a payback period.
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The question seems to be incomplete. It has been added below for better reference.
A food cart costs $4,500 and is expected to return $1,750 a year for three years and then be worthless. What is the payback period for this cart?
A. 36 months
B. 31 months
C. 12 months
D. None of the above.
