For years one through five, 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

Quizplus · Accepted Answer

The cash payback period is the amount of time it takes to recover the initial cash outlay for a project. In this case, the initial cash outlay is $250,000 and the cumulative net cash flows for years one through three are $90,000 + $85,000 + $75,000 = $250,000, which means the cash payback period is 3 years. Therefore, the statement is true.

For Years One Through Five, a Proposed Expenditure of $250,000