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15 November, 00:40

Payback: Quebec, Inc., is purchasing machinery at a cost of $3,768,966. The company's management expects the machinery to produce cash flows of $979,225, $1,158,886, and $1,881,497 over the next three years, respectively. What is the payback period?

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  1. 15 November, 03:18
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    2.13 years

    Explanation:

    The payback period is the time taken for the net inflows from a project to equal the amount invested into that project.

    Year Outflow/inflow Balance

    0 ($3,768,966) ($3,768,966)

    1 $979,225 ($2,789,741)

    2 $1,158,886 ($1,630,855)

    3 $1,881,497 250,642

    Additional period = 250,642 / 1,881,497 = 0.13

    Payback period = 2.13 years
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