Asked by Bryce Burns on Apr 27, 2024

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If a proposed expenditure of $70,000 for a fixed asset with a 4-year life has an annual expected net cash inflow and net income of $32,000 and $12,000, respectively, the cash payback period is 2.5 years.

Net Cash Inflow

Net cash inflow refers to the difference between the cash inflows and outflows within a given period, indicating the net change in cash and cash equivalents resulting from a company's activities.

Cash Payback Period

The time it takes for an investment to generate cash flow sufficient to recover its initial cost.

Net Income

The total profit of a company after all expenses, including taxes and operating expenses, have been subtracted from total revenue.

  • Become familiar with the principle of the cash payback period and the steps to compute it.
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Zybrea KnightMay 03, 2024
Final Answer :
False
Explanation :
The cash payback period is calculated by dividing the initial investment by the annual cash inflow. In this case, $70,000 / $32,000 = 2.1875 years, not 2.5 years.