Software Hub is deciding whether to purchase new accounting software.The cost of the software package is $56,000 and its expected life is 10 years.The payback for this investment is four years.Assuming equal yearly cash flows,what are the expected annual net cash savings from the new software? (Assume the investment has zero salvage value.)

Question

Quizplus · Accepted Answer

The payback period is four years, which means that the annual net cash savings must be equal to the initial cost of the investment divided by the payback period:

Annual net cash savings = $56,000 / 4 = $14,000

Therefore, the expected annual net cash savings from the new software is $14,000. Option A is the correct answer.

Software Hub Is Deciding Whether to Purchase New Accounting Software