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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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  1. 11 February, 22:35
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    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.
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