For years one through five,a proposed expenditure of $400,000 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 $120,000,$105,000,$100,000,$75,000,and $75,000,respectively.The cash payback period is 4 years.

Question

Quizplus · Accepted Answer

The cash payback period is the time it takes for the cash inflows to equal the initial cash outflow. In this case, the initial cash outflow is $400,000 and the cumulative cash inflows after 4 years are $400,000 ($120,000 + $105,000 + $100,000 + $75,000). Therefore, the cash payback period is 4 years, and since the asset has a 5-year life, the remaining net income and cash flows in year 5 are irrelevant to the calculation.

For Years One Through Five,a Proposed Expenditure of $400,000 for a Fixed