Lester's Feed Mill Is Spending $230,000 to Update Its Facility

question 65

Multiple Choice

Lester's Feed Mill is spending $230,000 to update its facility. The company estimates that this investment will improve its cash inflows by $46,500 a year for 10 years. What is the payback period?

• A) 4.03 years
• B) 4.95 years
• C) 5.39 years
• D) 5.67 years
• E) The project never pays back.

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Definitions:

Net Present Value

The difference between the present value of cash inflows and outflows over a period of time, used in capital budgeting to assess the profitability of an investment.

Cash Flows

The aggregate sum of funds flowing in and out of a company, particularly influencing its liquid assets.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Initial Investment

The amount of money used to start a project, purchase assets, or acquire a stake in a business.