Root Products is considering acquiring a manufacturing plant. The purchase price is $900,000. The owners believe the plant will generate net cash inflows of $ 300 comma 000$300,000 annually. It will have to be replaced in eighteight years. To be​ profitable, the​ investment's payback period must occur before the​ investment's replacement date. Use the payback method to determine whether RootRoot Products should purchase this plant.

RootRoot

Products is considering acquiring a manufacturing plant. The purchase price is

$ 900 comma 000$900,000.

The owners believe the plant will generate net cash inflows of

$ 300 comma 000$300,000

annually. It will have to be replaced in

eighteight

years. To be​ profitable, the​ investment's payback period must occur before the​ investment's replacement date. Use the payback method to determine whether

RootRoot

Products should purchase this plant.

First enter the​ formula, then calculate the payback period.

Initial investment

/

Expected annual net cash inflow

=

Payback period

$900,000

/

$300,000

=

3

years

Determine whether

RootRoot

should purchase this plant.

The payback occurs

before

when the plant must be​ replaced, so the payback method

supports

purchasing the plant.