4.1 - Payback Period Explanation
Enroll to start learning
You’ve not yet enrolled in this course. Please enroll for free to listen to audio lessons, classroom podcasts and take practice test.
Practice Questions
Test your understanding with targeted questions
What is the payback period?
💡 Hint: Think about recovering your initial expenditure.
Define economic life.
💡 Hint: Consider how long a machine effectively serves its purpose.
4 more questions available
Interactive Quizzes
Quick quizzes to reinforce your learning
What is the payback period?
💡 Hint: It focuses on cash flow recovery.
True or False: The economic life of equipment is the time during which it is cost-effective to use.
💡 Hint: Think about how long machines remain beneficial.
1 more question available
Challenge Problems
Push your limits with advanced challenges
A factory has two machines: Machine A costs 60 lakh and earns 12 lakh per year; Machine B costs 48 lakh but earns 14 lakh for the first 4 years and drops to 6 lakh after that. Calculate the payback period for both machines and suggest which to select.
💡 Hint: Calculate each machine's cumulative profits yearly to see when they reach the initial investment.
Evaluate a scenario where a company has to choose between retaining an older machine that costs 40 lakh with expected annual profits of 8 lakh and a new machine at 50 lakh with 9 lakh for 5 years. Determine if changing the machine is justified.
💡 Hint: Focus on potential efficiency gains from the new machine.
Get performance evaluation
Reference links
Supplementary resources to enhance your learning experience.