Managerial Finance Question

Question

I am having trouble in a managerial accounting class. If anyone could review the question and answer I have come up with, I would greatly appreciate it.

You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,000 and will be posted for one year. You expect that it will generate additional revenue of $500 per month. What is the payback period?

Payback period = Initial Investment / Cash Inflow Per Period
= $5000 / $500
= 10 years

Answer 1

Your math is right, but it's 10 months, not 10 years.

 

($500 per month)*(10 months) = $5000