The cost of a new machine is $250,000.

the machine has a five-year life and no salvage value.

if the cash flow each year is equal to 25% of the cost of the machine, calculate the payback period for the project:

Initial outlay = $250,000

Annual cash inflow = 25% x $250,000 = $62,500 per annum

Payback period = Initial outlay

                             Annual cash inflow

                          = $250,000

                             $62,500

                          = 4 years

Explanation:

In this respect, there is need to calculate the annual cash inflow, which is 25% of initial outlay. Then, we will divide the initial outlay by the annual cashflow. This gives the payback period of the machine.

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