It will cost $9,600 to acquire an ice cream cart that is expected to produce cash inflows of $3,600 a year for three years. After the three years, the cart is expected to be worthless. What is the payback period?Single choice
A
A. 1.82 years
B
B. 2.67 years
C
C. 2.82 years
D
D. 1.67 years

Question

It will cost $9,600 to acquire an ice cream cart that is expected to produce cash inflows of $3,600 a year for three years. After the three years, the cart is expected to be worthless. What is the payback period?Single choice

A

A. 1.82 years

B

B. 2.67 years

C

C. 2.82 years

D

D. 1.67 years

BlackTom AI · Accepted Answer

Payback period is the time required to recover the initial investment from cumulative cash inflows, without discounting for the time value of money.

Relevant concepts:
- Initial outlay = $9,600.
- Annual cash inflow = $3,600 for three years.
- Payback = time until cumulative inflows equal the initial outlay.

Step-by-step reasoning and calculations:
1. Cumulative inflows after each year:
   - After Year 1: $3,600.
   - After Year 2: $3,600 + $3,600 = $7,200.
   - After Year 3: $7,200 + $3,600 = $10,800.
2. The initial $9,600 is not recovered after 2 years (only $7,200), but is recovered sometime during Year 3 because cumulative after Year 3 exceeds $9,600.
3. Additional amount needed after Year 2 = $9,600 − $7,200 = $2,400.
4. Fraction of Year 3 required = $2,400 / $3,600 = 2/3 ≈ 0.6667 years.
5. Total payback period = 2 years + 0.6667 year = 2.6667 years ≈ 2.67 years.

Alternate quick method (since inflows are identical each year): payback = initial outlay / annual inflow = $9,600 / $3,600 = 2.6667 years.

Why the correct answer is correct:
- The calculation directly determines when cumulative cash inflows reach the $9,600 investment. The arithmetic shows 2.6667 years, which rounds to 2.67 years.

Why the other options are incorrect:
- A (1.82 years) and D (1.67 years) are too short; after Year 1 and Year 2 the cumulative amounts ($3,600 and $7,200) are both less than $9,600, so payback must exceed 2 years.
- C (2.82 years) is slightly too long; at 2.82 years the cumulative inflows would be $3,600 × 2.82 = $10,152, which overshoots the required $9,600 by more than necessary. The exact required fraction is 0.6667, not 0.82.

Conclusion: The computed payback period is 2.67 years, matching the provided correct answer B.

It will cost $9,600 to acquire an ice cream cart that is expected to produce cash inflows of $3,600 a year for three years. After the three years, the cart is expected to be worthless. What is the payback period?Single choice

Similar Questions

Mansi Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$425 $300 $325 $350

MC algo 8-3 Calculating Payback Period There is a project with the following cash flows : Year Cash Flow 0 −$ 23,900 1 7,100 2 7,750 3 7,150 4 5,200 What is the payback period?

The formula for Payback Period is Investment Required Divided by Annual Net Cash Inflow.

Guerilla Radio Broadcasting has a project available with the following cash flows : Year Cash Flow 0 −$ 14,000 1 5,800 2 7,100 3 6,100 4 4,900 What is the payback period?

Consider a project with the following cash flows: [table] YEAR | CASH FLOWS 0 | -10000 1 | 4000 2 | 4000 3 | 4000 4 | 4000 [/table] The payback period for this project is closest to:

Which of the following trees corresponds to a potential parse of the ambiguous sentence below, with correct syntactic categories? Some diagnostics are provided.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler

It will cost $9,600 to acquire an ice cream cart that is expected to produce cash inflows of $3,600 a year for three years. After the three years, the cart is expected to be worthless. What is the payback period?Single choice

Similar Questions

Mansi Inc. is considering a project that has the following cash flow data. What is the project's payback? Year 0 1 2 3 Cash flows -$425 $300 $325 $350

MC algo 8-3 Calculating Payback Period There is a project with the following cash flows : Year Cash Flow 0 −$ 23,900 1 7,100 2 7,750 3 7,150 4 5,200 What is the payback period?

The formula for Payback Period is Investment Required Divided by Annual Net Cash Inflow.

Guerilla Radio Broadcasting has a project available with the following cash flows : Year Cash Flow 0 −$ 14,000 1 5,800 2 7,100 3 6,100 4 4,900 What is the payback period?

Consider a project with the following cash​ flows: [table] YEAR | CASH FLOWS 0 | -10000 1 | 4000 2 | 4000 3 | 4000 4 | 4000 [/table] The payback period for this project is closest​ to:

Which of the following trees corresponds to a potential parse of the ambiguous sentence below, with correct syntactic categories? Some diagnostics are provided.

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Consider a project with the following cash flows: [table] YEAR | CASH FLOWS 0 | -10000 1 | 4000 2 | 4000 3 | 4000 4 | 4000 [/table] The payback period for this project is closest to: