Flores Company has identified that the cost of new manufacturing equipment will be $60000 but with the use of the new equipment net income will increase by $5000 a year. If depreciation expense is $5000 a year the cash payback period is:
A) 16.7 years.
B) 11.4 years.
C) 12 years.
D) 6 years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by dividing the initial investment by the annual cash inflow. The annual cash inflow is the increase in net income plus the depreciation expense, which is $5000 + $5000 = $10000. Therefore, the cash payback period is $60000 / $10000 = 6 years.

Flores Company Has Identified That the Cost of New Manufacturing