The payback period of a company is the time period after which the initial cost or investment of a project or business would be recovered. It is calculated by dividing the initial investment of a project or business by the average yearly cash inflows. The cash flows for the franchise have been calculated by adding back the amount of depreciation to net income.
The initial investment required for the franchise is $438,850 which is divided by the average cash inflows to arrive at a payback period of 4.1 years. This indicates that the amount invested by the owner would be recovered in the beginning of the fifth year of business.
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