Bark Company is considering buying a machine for $180,000 with an estimated life

Question

Bark Company is considering buying a machine for $180,000 with an estimated life of 10 years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $12,000 each year. The cash payback period on this investment is Question 48 options: 10 years 3 years 6 years 15 years Bark Company is considering buying a machine for $180,000 with an estimated life of 10 years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $12,000 each year. The cash payback period on this investment is Bark Company is considering buying a machine for $180,000 with an estimated life of 10 years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $12,000 each year. The cash payback period on this investment is 10 years 3 years 6 years 15 years 10 years 3 years 6 years 15 years 10 years 3 years 6 years 15 years

Explanation / Answer

Cash Payback period:

Cash paybach period of an investment is the time period at which the the project will pay back the total investment cost.

Cost of the machine is $180,000

Expected annual net income = $12,000.

The cash payback period = Cost of the investment/Annual net income

                                              = $180,000/$12,000

                                              = 15 years.

Thus, the cash payback period of the machine is 15 years.

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