Tim’s nail world may need to invest $270,000 to purchase a new nail machine. the managerial accountant reported that the new nail machine will generate $90,000 in net cash flows each year. what is the payback period for the new nail machine?

The payback period for the nail machine will be after 3 years.

Explanation: After 1 year $90 000 will be generated by Tim according to the Accountant. Then after 2 years we can say $90 000×2 we get $180 00.

Lets's continue to 3 years, we take 3 years× $90 000 we get $270 000.

Therefore the payback is after 3 years.

Or

We can take the selling amount which $270 000 divide it by the net amount we get 3 years, to prove the answer we say : 3× $90 000 which is $270 000.

Net investment = $270,000

Cash In Value = $90,000

Payback period  = Net Investment / Cash In Value

 = $270,000 / $90,000

 = 3 years

So, the payback period for the production machine is 3 years.

Payback Period is the period or number of years needed to return the investment value that has been issued. The return period in Indonesian can also be referred to as the return period. Investors or Entrepreneurs often use the Payback Period (PP) as a determining factor in making investment decisions, decisions that determine whether to invest their capital in a project or not.

How to Calculate Payback Periods

The payback period can be calculated by dividing the investment value (Investment Cost) by the annual net cash flow (Net Cash Flow).

Payback Period Formula:

The following is the Payback Period (PP) formula:

Payback Period = Net Investment Value / Cash Entry

Note: This formula assumes that net cash inflows are the same in each period or the same in every year.

Conclusion of the return period:

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definition of Payback Period

How to calculate payback period

Details

Grade: High School

Subject: Social studies

keywords: Payback Period

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