A $600,000 Investment Is Expected to Generate Cash Flows of $120,000

question 88

Multiple Choice

A $600,000 investment is expected to generate cash flows of $120,000 per year for each of the next six years. What is the investment's payback period?

• A) 6.0 years
• B) 5.0 years
• C) 4.0 years
• D) 2.5 years

---

Definitions:

Direct Labor-Hours

A measurement of the time workers spend directly manufacturing a product, often used to allocate manufacturing overhead.

Fixed Manufacturing Overhead Cost

Overhead costs related to manufacturing that remain constant regardless of the level of production, such as factory rent and salaries of supervisors.

Variable Manufacturing Overhead

Costs in manufacturing that change with the level of production output, like utilities or raw materials.

Direct Labor-Hours

The total hours worked by employees who are directly involved in the production of goods or services.