What is the payback period for a new espresso machine that costs $4,500 and is expected to generate a yearly income of $2,420?

What is the payback period for a new espresso machine that costs $4,500 and is expected to generate a yearly income of $2,420?

• A. 0.54 years
• B. 0.75 years
• C. 1.86 years
• D. 2.22 years

Answer: (C)

The payback period is how long it takes to recover the initial investment from the annual cash inflow. Divide the upfront cost by the yearly income: 4,500 ÷ 2,420 ≈ 1.859 years, which rounds to about 1.86 years (roughly 1 year and 10 months). This matches the given option. Shorter times wouldn’t fully recover the $4,500, while a longer time would imply you recover later than you actually do.

The payback period is how long it takes to recover the initial investment from the annual cash inflow. Divide the upfront cost by the yearly income: 4,500 ÷ 2,420 ≈ 1.859 years, which rounds to about 1.86 years (roughly 1 year and 10 months). This matches the given option. Shorter times wouldn’t fully recover the $4,500, while a longer time would imply you recover later than you actually do.