Asked by Bryce Burns on Apr 27, 2024
Verified
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.
Verified Answer
ZK
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.
Learning Objectives
- Become familiar with the principle of the cash payback period and the steps to compute it.