Novak Company has identified that the cost of a new computer will be $40000, but with...
Novak Company has identified that the cost of a new computer will be $40000, but with the use of the new computer, net income will increase by $7000 a year. If depreciation expense is $3000 a year, the cash payback period is:
13.3 years.
10.0 years.
5.7 years.
4.0 years.
q46
Homework Answers
What is cash payback period.
Cash payback period is calculated to calculated the time needed to recover the initial investment.
The higher the cash payback period, the longer the period you need to recover your investment.
Formula for calculating cash payback period
Cash payback period =
Initial investment / cash inflows
The question mentions the
initial investment =. 40000
Cash inflow =. 7000
Therefore
cash payback period = 4000/ 7000
= 5.7 years
Since the 3rd option is correct we disqualify other options .
|
NOTE Depreciation is a non-cash expense and has therefore been ignored while calculating the payback period of the project. |
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