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Willis, Inc. has a cost of capital of 15 percent and is considering the acquisition of a new machine, which costs $400,000 and has a useful life of five years. Willis projects that earnings and cash flow will increase as follows.
What is the payback period of this investment?
Suggested Answer: B
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Choice 'b' is correct. 3.00 year payback period.
Note: After 3 years, the initial investment is recovered, as the cumulative cash inflows equal $400,000. The cash flows are not discounted when the payback method is used.
20 comments · newest first
HA
Haydee
1 month ago
I agree with C, it balances the costs and returns well.
CA
Carey
1 month ago
I’m not sure, but 4 years seems too long.
CY
Cyndy
2 months ago
I calculated the cash flows, and C makes sense to me.
OL
Oliva
2 months ago
I feel like 3 years is reasonable, so B might be right.
RE
Refugia
2 months ago
I’m leaning towards option C, 3.33 years.
BE
Bernadine
2 months ago
I think the payback period is crucial for this decision.
SA
Sabra
2 months ago
Just did the math, and yeah, 3.00 years checks out!
SU
Sunny
2 months ago
I think it's closer to 3.33 years, though.
MI
Mila
3 months ago
Wait, are we sure about those cash flow projections?
AU
Audra
3 months ago
Totally agree, 3 years sounds right!
JO
Johna
3 months ago
The payback period is 3.00 years based on the cash flows.
TA
Tamesha
3 months ago
I calculated 3.33 years, but I might be off.
CA
Casandra
3 months ago
I thought it would be shorter, but 3 years makes sense.
AN
Angelyn
4 months ago
Wait, are we sure about those cash flow projections?
AD
Adelle
5 months ago
Totally agree, 3 years sounds right!
CH
Chan
5 months ago
The payback period is 3.00 years.
RO
Ronnie
6 months ago
I feel like the payback period should be less than 4 years, but I can’t recall the exact method to calculate it with these specific figures.
GI
Giovanna
6 months ago
I’m a bit confused about how to sum the cash flows correctly. I think I might have to break it down year by year to get the right answer.
JE
Jean
6 months ago
This seems similar to a question we did in class where we had to find the payback period. I think it’s around 3 years based on the cash flows.
AL
Alise
6 months ago
I remember we practiced calculating payback periods, but I’m not sure how to apply it with these cash flows.