How long is the payback period for Proposal Y with an investment of $468,000 and estimated annual net cash inflows of $78,000?

To determine the payback period for Proposal Y, you need to calculate how long it takes for the initial investment of $468,000 to be recovered through the annual net cash inflows of $78,000. The payback period is found by dividing the initial investment by the annual cash inflow.

In this case, you would perform the following calculation:

Payback Period = Initial Investment / Annual Cash Inflow Payback Period = $468,000 / $78,000 Payback Period = 6 years

This calculation shows that it will take 6 years to fully recover the investment through the expected annual cash inflows. This makes it clear why the answer of 6 years is the correct choice for the payback period for Proposal Y.

Understanding the payback period is crucial for evaluating investment proposals, as it provides insight into how quickly an investment can return its initial cost, helping businesses assess risk and liquidity related to capital investments.