An anticipated purchase of equipment for $490,000 with a useful life of 8 years and no residual value is expected to yield the following annual incomes and net cash flows: Year Net Income Net Cash Flow
1 $60,000 $110,000
2 50,000 100,000
3 50,000 100,000
4 40,000 90,000
5 40,000 90,000
6 40,000 90,000
7 40,000 90,000
8 40,000 90,000
The cash payback period for the equipment is:.
a. 5 years
b. 4 years
c. 3 years
d. 6 years

5 years

Explanation:

The Payback period calculates the amount of the time it takes to recover the amount invested in a project to be recovered from the cumulative cash flow.

The total amount invested in the project = $-490,000

I'm the first year, the amount that would be recovered would be $-490,000 + $110,000 = $-380,000

The amount recovered in the second year is $-380,000 + 100,000 = $-280,000

The amount recovered in the 3rd year is $-280,000 + 100,000 = $-180,000

The amount recovered in the 4th year is $-180,000 + 90,000 = $-90,000

The amount recovered in the 5th year is $-90,000 + $90,000 = 0

The total amount is recovered In the 5th year.

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