A potential dry cleaning business requires a $100,000 investment in equipment and has monthly expenses of $5,000. If average monthly gross revenue is $8,000, how many months will it take to recoup the initial investment?

A potential dry cleaning business requires a $100,000 investment in equipment and has monthly expenses of $5,000. If average monthly gross revenue is $8,000, how many months will it take to recoup the initial investment?

• A. Less than 9 months
• B. Less than 20 months
• C. Less than 34 months
• D. None of the above

Answer: (C)

Payback period is the time needed to recover an initial investment from net cash flow. Here, net monthly cash flow equals gross revenue minus monthly expenses: 8,000 − 5,000 = 3,000 per month. With a 100,000 upfront investment, the payback time is 100,000 ÷ 3,000 ≈ 33.33 months. Since 33.33 months is under 34 months, the correct choice is the one that says less than 34 months. This ignores taxes, depreciation, and timing changes, but for the given numbers it shows the recoupment period. The other options would require a faster recovery than the cash flow provides (for example, 9 or 20 months would need much higher monthly net cash flow), so they don’t fit.

Payback period is the time needed to recover an initial investment from net cash flow. Here, net monthly cash flow equals gross revenue minus monthly expenses: 8,000 − 5,000 = 3,000 per month. With a 100,000 upfront investment, the payback time is 100,000 ÷ 3,000 ≈ 33.33 months. Since 33.33 months is under 34 months, the correct choice is the one that says less than 34 months. This ignores taxes, depreciation, and timing changes, but for the given numbers it shows the recoupment period. The other options would require a faster recovery than the cash flow provides (for example, 9 or 20 months would need much higher monthly net cash flow), so they don’t fit.