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What is the pros of payback period

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Reference no: EM132513571

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,

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

Question 1: What is the payback period and What is the advantages and disadvantages of using payback period as your investment decision? Please show calculation.

Reference no: EM132513571

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