A project requires a $560,000 initial investment for new machinery. The project is expected to yield income of $40,000 per year and net cash flows of $140,000 per year for the next five years. The project has a payback period of 4.0 years. Group startsTrue or False True, selected False, unselected

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06-05-2022
Business

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A project requires a $560,000 initial investment for new machinery. The project is expected to yield income of $40,000 per year and net cash flows of $140,000 per year for the next five years. The project has a payback period of 4.0 years. Group startsTrue or False True, selected False, unselected

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divyamadaan8054 divyamadaan8054 · Answer 1 · 2022-05-14T09:22:12+02:00

It is True. According to the statement, the project has a payback period of 4.0 years.

What do you mean by Payback period method?

Payback period is the time period it takes for an investment to cover its initial investment in the form of future cash flows.

If we discount back the cash flows, it will result in lowering its value. As the denominator in a equation decreases the value of result increase.

Here, Payback period method is calculated by dividing the net cash flows from the initial investment and $560,000/ $140,000=4.0.

Therefore, it is True.

Learn more about payback period, refer to the link:

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