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the management of lee corporation is considering a project that would require an investment of $400,000 and would last for 8 years. the annual net operating income from the project would be $140,000, which includes depreciation of $43,000. the salvage value of the project's assets at the end of the project would be $56,000. the payback period of the project is closest to: a. 2.2 years b. 2.9 years c. 3.5 years d. 4.1 years

Respuesta :

The payback period of the project is closest to 2.9 years. This can be calculated using the following formula:

Payback Period = Investment / Annual Net Operating Income

Payback Period = 400,000 / (140,000 - 43,000)

Payback Period = 2.86 years (or 2.9 years rounded up)

Payback period is defined as the number of years required to recover the original cash investment. In other words, it is the period of time at the end of which a machine, facility, or other investment has produced sufficient net revenue to recover its investment costs.

Once the cumulative cash flow is positive—the payback year—the cost of the investment is divided by the annual cash flow to get the payback period. Typically, the payback period is indicated in years.

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