Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of six years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

Question

Quizplus · Accepted Answer

To calculate the cash payback period, we need to divide the initial cost of the machine by the net annual cash flows, which gives us:

Cash payback period = Initial cost / Annual net cash flow

Cash payback period = $675,000 / $150,000

Cash payback period = 4.5 years

Therefore, the estimated cash payback period for the machine is 4.5 years, which is option C.

Hayden Company Is Considering the Acquisition of a Machine That