Perry Enterprises purchased a new machine with a total cost

Perry Enterprises purchased a new machine with a total cost of? $31,600 and a useful life of 4 years. The machine will produce net cash inflows of? $7,600 over its useful life and has a residual value of? $1,510. What is the payback period for the new? machine?

A.3.16 years

B.4.16 years

C.3.96 years

D.5.19 years

Solution

C. 3.96 years ,

payback period = [initial investment - Residual value] / net annual cash inflow

= [$31,600 - $1510 ] / $7600

= $30090 / $7600   

= 3.96 years