Business FinancesQuestion 510 of 1605
A contractor purchases a $50,000 piece of equipment that is expected to generate $20,000 of net cash inflow each year. What is the simple payback period?
a.2.0 years
b.2.5 years
c.3.0 years
d.4.0 years
Explanation
Payback Period = Initial Investment ÷ Annual Net Cash Inflow = $50,000 ÷ $20,000 = 2.5 years. Payback ignores time value of money and post-payback cash flows; it is used as a quick liquidity-risk screen for capital expenditures.
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