(Ignore income taxes in this problem.) The Keego Company is planning a $200,000
ID: 2386494 • Letter: #
Question
(Ignore income taxes in this problem.) The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment:Year
Cash Inflows
1
$120,000
2
60,000
3
40,000
4
40,000
5
40,000
Total
$300,000
Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.
A. 2.50
B. 0.75
C. 1.67
D. 4.91
***Please SHOW HOW to get this
Explanation / Answer
The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment:
Year
Cash Inflows
1
$120,000
2
60,000
3
40,000
4
40,000
5
40,000
Total
$300,000
Assuming that the cash inflows occur evenly over the year, the payback period for the investment is _______ years.
ANSWER = A. 2.50
$200,000-----120,000=80,000
80,000---60,000=20,000
20,000/40,000=0.5
0.5 X5=2.5YEARS
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