1. **State the problem:** Calculate the payback period given an initial investment of $37800 and an expected annual net cash inflow of $58150. 2. **Formula for payback period:** $$\text{Payback Period} = \frac{\text{Initial Investment}}{\text{Annual Net Cash Inflow}}$$ 3. **Explanation:** The payback period tells us how long it takes to recover the initial investment from the net cash inflows. 4. **Calculate the payback period:** $$\text{Payback Period} = \frac{37800}{58150} \approx 0.65 \text{ years}$$ 5. **Interpretation:** Since the payback period is 0.65 years, it means the investment is recovered in less than one year. 6. **Important notes about NPV and IRR:** - Both NPV (Net Present Value) and IRR (Internal Rate of Return) consider the time value of money, so the statement that they ignore it is incorrect. - The payback period method ignores the time value of money. 7. **Summary:** - Payback period = 0.65 years (less than one year) - NPV and IRR do consider the time value of money - Payback period ignores the time value of money