QuestionMay 22, 2025

Choose an answer and hit 'next!. You will receive your score and answers at the end. If an asset costs 100,000 and generates 50,000 per year, how long is the payback period? 4 years 2 years 1 year 6 months

Choose an answer and hit 'next!. You will receive your score and answers at the end. If an asset costs 100,000 and generates 50,000 per year, how long is the payback period? 4 years 2 years 1 year 6 months
Choose an answer and hit 'next!. You will receive your score and answers at the end.
If an asset costs 100,000 and generates 50,000 per year, how long is the
payback period?
4 years
2 years
1 year
6 months

Solution
4.6(272 votes)

Answer

2 years Explanation 1. Define Payback Period The payback period is the time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment. 2. Calculate Payback Period Use the formula: **Payback Period = \frac{\text{Initial Investment}}{\text{Annual Cash Inflow}}**. Here, Initial Investment = \100,000 and Annual Cash Inflow = \50,000. 3. Perform Calculation Payback Period = \frac{100,000}{50,000} = 2 years.

Explanation

1. Define Payback Period<br /> The payback period is the time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.<br /><br />2. Calculate Payback Period<br /> Use the formula: **Payback Period = \frac{\text{Initial Investment}}{\text{Annual Cash Inflow}}**. Here, Initial Investment = \$100,000 and Annual Cash Inflow = \$50,000.<br /><br />3. Perform Calculation<br /> Payback Period = $\frac{100,000}{50,000} = 2$ years.
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