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sir, I have doubt about how to calculate the accurate month in a payback period
question: 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. the output would be 1,000 units per year for each of the six years of the machine’s life. each unit earns a contribution of $5.
payback period in years and months is asked
I am getting 3.375 but in answer, it says 3 years and 9 months how did they come up with the 3 years and 9 months I don’t get it, and neither they have provided with an explanation
I do not know how you arrived at 3.375.
The payback period is 18,750/5,000 = 3.75 years.
0.75 years = 0.75 x 12 = 9 months. Therefore the payback period is 3 years and 9 months.
okay i mixed some concept now i got it thanks for telling
You are welcome 🙂