Chapter 24, Problem 1QS

To determine

Investment decision:

Investment decision can be referred to as capital budgeting. It involves finding solutions to questions like whether to add to capital assets today will increase the revenues of tomorrow to cover costs.

The payback period of the investment.

Answer to Problem 1QS

Solution:

The payback period of the investment is 3 years.

Explanation of Solution

Calculate the payback period as shown below.

$\begin{array}{c}\text{Payback}\text{period}=\frac{\text{Total}\text{investment}}{\text{Amount}\text{invested}}\\ =\frac{\$27,000}{\$9,000}\\ =3\text{years}\end{array}$

Therefore, the payback period is 3 years.

Conclusion

Hence, the payback period of the investment is 3 years.