Mint Company is considering purchasing a machine with a cost of $10,000 and a useful life of 20 years. Mint expects the machine to produce net annual cash flows of $2,000 each year. What is the cash pay-back period of the machine? A) 2 years B) 5 years C) 10 years D) 0.20 years

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Business

Jamiya

11 February, 22:18

Mint Company is considering purchasing a machine with a cost of $10,000 and a useful life of 20 years. Mint expects the machine to produce net annual cash flows of $2,000 each year. What is the cash pay-back period of the machine? A) 2 years B) 5 years C) 10 years D) 0.20 years

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Casey Holland · Answer 1

B) 5 years

Explanation:

Year Cash outflow Cash inflow Balance

0 (10,000.00) - (10,000.00)

1 - 2,000.00 (8,000.00)

2 - 2,000.00 (6,000.00)

3 - 2,000.00 (4,000.00)

4 - 2,000.00 (2,000.00)

5 - 2,000.00 -

All amounts above are stated in $.

From the table above, it will take 5 years to pay back.

The right option is B) 5 years.