If a proposed expenditure of $400,000 for a fixed asset with a 4-year life has an annual expected net cash flow and net income of $160,000 and $60,000, respectively, the cash payback period is 2.5 years.

Question

Quizplus · Accepted Answer

To calculate the cash payback period, we need to divide the initial investment by the annual net cash flow.

$400,000 / $160,000 = 2.5 years

Since the cash payback period is 2.5 years and the statement in the question states the same, the answer would be true (A).

If a Proposed Expenditure of $400,000 for a Fixed Asset