An anticipated purchase of equipment for $580,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: What is the cash payback period?

Question

An anticipated purchase of equipment for $580,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows:  What is the cash payback period?

Quizplus · Accepted Answer

To calculate the cash payback period, we need to find the time period in which the cumulative net cash flows add up to the initial cost of the equipment.

Cumulative net cash flows:
Year 1: $60,000
Year 2: $110,000
Year 3: $140,000
Year 4: $180,000
Year 5: $210,000
Year 6: $220,000
Year 7: $230,000
Year 8: $230,000

We can see that the cumulative net cash flows reach $580,000 (the initial cost) in the 6th year, so the cash payback period is 6 years. Therefore, the best choice is C.

An Anticipated Purchase of Equipment for $580,000, with a Useful