What is the payback period

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Reference no: EM132420544

Problem: A client of yours is experiencing expanding of his business rapidly, he needs to consider if he should purchase a new machine for his business. He has come to you for your advice. The relevant details are provided below,

  • Machine cost $120,000
  • Expected operating life 5 years
  • Expected scrap value at the end of 5 years $20,000
  • Annual depreciation $20,000
  • Expected annual cash inflows from operations $40,000

Required:

a. What is the payback period? Please show calculation.

b. What is the advantages and disadvantages of using payback period as your investment decision?

Reference no: EM132420544

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