Hazard Company is considering the acquisition of a machine that costs $525,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual cash flow of $150,000, and annual operating income of $87,500. What is the estimated cash payback period for the machine?

Question

Quizplus · Accepted Answer

The cash payback period can be calculated by dividing the initial cost of the machine by the annual cash flow it generates:

$525,000 ÷ $150,000 = 3.5

Therefore, the estimated cash payback period for the machine is 3.5 years. The best choice is C.

Hazard Company Is Considering the Acquisition of a Machine That