alleryStart learning →A machine costs $16,000 and the added cash inflow recovers that cost over four years. Payback is:
AFive years
BTen years
CFour years
DNine years
Answer & Solution
Correct answer: C. Four years
1. Payback asks how long the inflows take to add up to the cost.
2. The inflow is expected to increase by $16,000 over the first four years.
3. That is exactly the cost of the machine.
4. So the payback period for the machine is four years.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 16 'How Companies Think about Investing', sections 16.1-16.5_
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