If a proposed expenditure of $80,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years.

Question

Quizplus · Accepted Answer

To calculate cash payback period, we divide the initial investment ($80,000) by the annual net cash inflow ($32,000):
Cash payback period = $80,000 ÷ $32,000 = 2.5 years
Since the cash payback period is exactly 2.5 years as given in the problem, the answer is A) True.

If a Proposed Expenditure of $80,000 for a Fixed Asset