An anticipated purchase of equipment for $520,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: $\begin{array}{lll}\text { Year } &\text {Net Income } &\text { Net Cash Flow }\
1 & \$ 60,000 & \$ 120,000 \
2 & 50,000 & 110,000 \
3 & 50,000 & 110,000 \
4 & 40,000 & 100,000 \
5 & 40,000 & 80,000 \
6 & 40,000 & 80,000 \
7 & 40,000 & 60,000 \
8 & 40,000 & 60,000
\end{array}$ What is the cash payback period?

Question

Quizplus · Accepted Answer

The cash payback period is the number of years it takes for the cumulative net cash flows to equal the initial investment. In this case, the initial investment is $520,000. The cumulative net cash flows are as follows:Year 1: $120,000Year 2: $230,000Year 3: $340,000Year 4: $440,000Year 5: $520,000Therefore, the cash payback period is 5 years.

An Anticipated Purchase of Equipment for $520,000, with a Useful