Brief Exercise 24-1 Rihanna Company is considering purchasing new equipment for

Question

Brief Exercise 24-1 Rihanna Company is considering purchasing new equipment for $315,000. It is expected that the equipment will produce net annual cash flows of $45,000 over its 10-year useful life. Annual depreciation will be $31,500. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)
Cash payback period years

Brief Exercise 24-1 Rihanna Company is considering purchasing new equipment for $315,000. It is expected that the equipment will produce net annual cash flows of $45,000 over its 10-year useful life. Annual depreciation will be $31,500. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.) Cash payback period years Click if you would like to Show Work for this question: Open Show Work Question Attempts: 0 of S used SAVE FORLATER SUBMIT ANSWER

Explanation / Answer

Cash Payback Period:

When Net Annual Cash flow is Even, the Payback period can be computed by using a formula

Payback Period = Cost of the Investment/Annual Net Cash flow

Cash Payback Period = $315,000/$45,000 = 7 Years

Note: Depreciation is a Non Cash Expense and has therefore been ignored while calculating the payback period.

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