Crea Company is considering buying a machine for $54000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate cash inflow of $6000 each year. The cash payback on this investment is
A) 15 years.
B) 10 years.
C) 9 years.
D) 4.5 years.

Question

Quizplus · Accepted Answer

The cash payback period is the length of time it takes for the initial investment to be recovered in cash inflows. Using the straight-line method, the annual depreciation expense will be $54000/10 = $5400. Therefore, the annual cash inflows of $6000 will cover both the operating expenses and the depreciation expense. The cash payback period will be:
$54000/$6000 = 9 years. 
Therefore, the answer is C) 9 years.

Crea Company Is Considering Buying a Machine for $54000 with an Estimated