Keltner Enterprises is considering investing in a new packing machine.The new machine will provide annual cash operating inflows of $12,300 for 5 years.The cost of the machine is $42,300 and it can be sold at the end of its 5-year useful life for $6,800.Keltner's required rate of return is 10%.What is the packing machine's payback period?
A)3.44 years
B)2.89 years
C)3.99 years
D)7.69 years

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual cash inflow. The initial investment is $42,300. The annual cash inflow is $12,300. Therefore, the payback period is $42,300 / $12,300 = 3.44 years. The salvage value is not considered in the payback period calculation.

Keltner Enterprises Is Considering Investing in a New Packing Machine