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Payback Period for Empire Office

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Payback Period

Empire Office needs a new machine for production of its new models. The financial Vice President has appointed you to do the capital budgeting analysis. You have identified a machine that is capable of performing the job. You have completed the cash flow analysis, and the expected net cash flows are as follows:
Year Est. Net Cash Flow
0 ($5,000)
1 2,085
2 2,085
3 2,085
4 2,085

What is the payback period?

Choices:
a. 2.0 year b. 1.0 years c. 2.6 years d. 2.4 years e. 3.0 years

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Solution Preview

Here is the information provided:

Year Cash Flow Net cash Flow
0 -5000 -5000
1 2085 -2915
2 2085 -830
3 2085 ...

Solution Summary

This solution calculates the payback period according to a recorded series of net cash flows.

$2.19