Zed Corporation is evaluating the purchase of a machine that costs $275,000.The annual cash revenues from the machine would be $50,000, and the annual cash expenses of the machine would be $10,000.What is the estimated cash payback period for the machine?

Question

Quizplus · Accepted Answer

The cash payback period can be calculated by dividing the initial cost of the machine by the net annual cash inflows.

Net annual cash inflows = Annual cash revenues - Annual cash expenses
= $50,000 - $10,000
= $40,000

Cash payback period = Initial cost / Net annual cash inflows
= $275,000 / $40,000
= 6.875 years

Therefore, the estimated cash payback period for the machine is approximately 6.9 years, which is closest to option C (6.9 years). Option C is the best choice.

Zed Corporation Is Evaluating the Purchase of a Machine That