For Years 1-5,a proposed expenditure of $250,000 for a fixed asset with a 5-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 3 years.

Question

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The cash payback period is calculated by adding the net cash flows of each year until the total equals the initial expenditure. In this case, the cash payback period is 3 years, which means that the initial expenditure of $250,000 will be fully recovered in 3 years through the net cash flows of $90,000 in Year 1, $85,000 in Year 2, and $75,000 in Year 3. After the cash payback period, the net income and net cash flows will continue for 2 more years. Therefore, the proposed expenditure of $250,000 for the fixed asset is a viable investment as it generates positive net income and net cash flows over its 5-year life and recovers its initial cost in 3 years.

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