If an asset costs $60,000 and is expected to have a $5,000 salvage value at the end of its nine-year life, and generates annual net cash inflows of $10,000 each year, the cash payback period is

Question

Quizplus · Accepted Answer

To calculate cash payback period, we need to find out how many years it will take for the net cash inflows to equal the initial cost plus salvage value.

Initial cost = $60,000
Salvage value = $5,000
Total cash inflows over 9 years = 9 x $10,000 = $90,000

Subtracting the salvage value from the total cash inflows gives us $85,000 ($90,000 - $5,000).

To calculate the payback period, we divide the initial cost by the annual net cash inflows:

$60,000 ÷ $10,000 = 6 years.

Therefore, the cash payback period is 6 years.

If an Asset Costs $60,000 and Is Expected to Have