Question

A company is considering purchasing factory equipment that costs $320,000 and is estimated to have a $20,000 salvage value at the end of its 6-year useful life. If the equipment is purchased, annual revenues are expected to be $90,000 and annual operating expenses including depreciation expense are expected to be $78,000. The straight-line method of depreciation would be used. The cash payback period (rounded) on the equipment is T

he cash payback period (rounded) on the equipment is 6.40 years 5.16 years 3.55 years 4.83 years

Answer 1

Particulars	Amount (in $)
Annual revenues	$90,000
Less : operating expenses inluding Depreciation                ( $78,000 (-) ($320,000 (-) $20,000 / 6 Years)	($28,000)
Net cash inflows	$62,000
Pay back period         = Intial Cost (or) Investment / Net cash inflows         =   $ 320,000 / $62,000	5.16 Years
Option (b) is Correct   - 5.16 Years