. Calculation of Payback Period: Roger’s Gardens is considering an investment in
ID: 2480259 • Letter: #
Question
. Calculation of Payback Period: Roger’s Gardens is considering an investment in equipment (Equipment One) that requires immediate payment of $36,000 and provides expected cash inflows of $10,000 annually for four years. Part 1. What is the investment's payback period? You must show your work for credit.(1 point) Part 2. Assume the payback period for a similar investment in equipment (Equipment Two) for the same company was, say, 4.0 years. Which investment (Equipment One or Equipment Two) would the company prefer AND why? (1 point)
Explanation / Answer
1. Payback period for Equipment Investment / Cash inflow per annum = $36,000/$10,000 = 3.6 year
2.Assume the payback period for a similar investment in equipment (Equipment Two) for the same company was, say, 4.0 years.Company wiould prefer investment in Equipment One because it has lower payback period of 3.4 year and company would able to recover its money faster than that of Equipment two payback period of 4 years.
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