For years one through five, a proposed expenditure of $400,000 for a fixed asset with a 5-year life has expected net income of $50,000, $40,000, $20,000, $20,000, and $20,000, respectively, and net cash flows of $130,000, $120,000, $100,000, $100,000, and $100,000, respectively.The cash payback period is 3.5 years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by adding up the net cash flows until they equal the initial investment. In this case, the total net cash flows for the first three years are $350,000 ($130,000 + $120,000 + $100,000), which means the investment will be paid back in less than 3.5 years. Therefore, the statement is true.

For Years One Through Five, a Proposed Expenditure of $400,000