An investment of $1,000 with annual benefits of $200 per year for the first four years of its life and $100 per year for the next three years of its life has a payback period of: O 5 years 5

Economics Dec 03, 2020

An investment of $1,000 with annual benefits of $200 per year for the first four years of its life and $100 per year for the next three years of its life has a payback period of: O 5 years 5.5 years O 6 years O 7 years

Expert Solution

Payback period is the time frame when sum of annual benefit is equal to investment cost.

Annual benefit of first 4 years = $200 while it is $100 for next 3 years

Total benefit in 6 years = $200 * 4 + $100 * 2 = $1,000

Thus, payback period occurs in exact 6 years.

Option C is correct.

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