For years one through five, a proposed expenditure of $500,000 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 5 years.

Question

Quizplus · Accepted Answer

The cash payback period is the time it takes for the net cash flows to recover the initial investment. In this case, the total net cash flows over 5 years ($400,000) do not cover the $500,000 investment, so the payback period is longer than 5 years.

For Years One Through Five, a Proposed Expenditure of $500,000