Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $107,000. The equipment will have an initial cost of $214,000 and have a 3 year life. If the salvage value of the equipment is estimated to be $82,000, what is the payback period? Ignore income taxes.

Question

Business

Mina Hatfield

16 January, 06:25

Nelson Corp. is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $107,000. The equipment will have an initial cost of $214,000 and have a 3 year life. If the salvage value of the equipment is estimated to be $82,000, what is the payback period? Ignore income taxes.

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Francesca Hicks · Answer 1

2 years

Explanation:

The computation of the payback period is shown below:

Payback period = Initial cost of equipment : Annual increase in cash flow

= $214,000 : $107,000

= 2 years

By dividing the initial cost of equipment from the annual increase in cash flow we can get the payback period and the same is shown above i, e in the computation part. and we ignored the salvage value for the same