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A sports shop spends 16,000 on a machine and expects inflows of 2,000, 4,000, 5,000, 5,000 and 5,000. Its payback period is:
A4 years
B3 years
C5 years
D2 years
Answer & Solution
Correct answer: A. 4 years
1. Add the inflows year by year.
2. They reach 16,000 at the end of year four.
3. The payback period is 4 years.
_Source: OpenStax Principles of Finance 2e, Chapter 16, How Companies Think about Investing._
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