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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Payback Period
J Co is considering investing in a new machine costing $18750, payable immediately. The scrap value will be zero, and the machine will be depreciated on a straight line basis.Output would be 1,000 units per year for each of the six years of the machines life. Each unit earns a contribution of $5
Using a discount rate of 8% and assuming that the cash flowa arise at the end of a year, what is the discounted payback period?
Sir my answer was 4 years and 4 month
The correct answer in the revision kit was 5 years
I don’t understand how that could be the correct answer sir
The question says that the cash flows arise at the ends of years.
Therefore after 4 years and 4 months, no cash flow will have happened for the final 4 months – it is only at the end of the 5th year that the cash arrives.
Oh ok so if we assume in a scenario where the answer was 3 years would that mean the cashflow will arrive at 3 years or 4 years sir?
If the answer came to exactly 3 years then it is 3 years. If the answer came to a bit more than 3 years then the answer would be 4 years. (But only because of the fact that the cash flows were said to arrive at the ends of years.)