For Years 1-5, a proposed expenditure of $250,000 for a fixed asset with a five-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and $25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and $75,000, respectively. The cash payback period is three years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by dividing the initial investment by the annual net cash flows. In this case, the initial investment is $250,000 and the annual net cash flows for the first three years total $250,000 ($90,000 + $85,000 + $75,000), which means the cash payback period is three years. Therefore, the statement is true.

For Years 1-5, a Proposed Expenditure of $250,000 for a Fixed