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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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An investment of $6,000 produces a net annual cash inflow of $2,000 for each of 5 years. What is the payback period?

  1. a. 2 years
  2. b. 1.5 years
  3. c. Unacceptable
  4. d. 3 years
  5. e. Cannot be determined

To determine

Find out the payback period where the investment is of $6,000 and net annual cash inflow is $2,000.

Explanation

Payback Period:

The time taken by an investment to recover its original value is known as payback period. It is calculated by dividing the original amount of investment by annual cash flow from the investment.

Use the following formula to calculate payback period:

Paybackperiod=OriginalinvestmentAverageann

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