For Years 1-5, a proposed expenditure of $500,000 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 five years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by summing the net cash flows until the initial investment is recovered. In this case, by the end of Year 3, the total net cash flow is $250,000 ($90,000 + $85,000 + $75,000), and by the end of Year 4, it is $325,000, which exceeds the initial investment of $500,000. Therefore, the cash payback period is less than five years.

For Years 1-5, a Proposed Expenditure of $500,000 for a Fixed