(Ignore income taxes in this problem.) The management of Truelove Corporation is considering a project that would require an initial investment of $321,000 and would last for 7 years. The annual net operating income from the project would be $28,000, including depreciation of $42,000. At the end of the project, the scrap value of the project's assets would be $27,000.Required:Determine the payback period of the project. Show your work!
What will be an ideal response?
| ? | Net operating income | $28,000 |
| ? | Add: Noncash deduction for depreciation | 42,000 |
| ? | Annual net cash inflow | $70,000 |
Payback period = Investment required ÷ Annual net cash inflow
= $321,000 ÷ $70,000 = 4.59 years
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