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Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $33,000...

Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $33,000 and will have a 6-year useful life and a $4,500 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $32,500 per year. The cost of these prescriptions to the pharmacy will be about $26,000 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to (Ignore income taxes.):

Multiple Choice

  • 4.4 years

  • 4 years

  • 5.8 years

  • 5.1 years

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Answer #1

Answer: 5.1 Years

Payback period: Time Period Required to get Back the investment MAde

Investment REquired = $33,000

Annual Cash flows = 32,500-26,000

Annula Cash flows = 6,500

Pay back Period = $ 33,000/ 6,500 = 5.07 = 5.1 Years

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