Question

Hayden Company is considering the acquisition of a machine that costs $489,000. The machine is expected...

  1. Hayden Company is considering the acquisition of a machine that costs $489,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash inflow of $90,000, and annual operating income of $76,500. The estimated cash payback period for the machine is (round to one decimal place)

    a.6.4 years

    b.1.2 years

    c.7.6 years

    d.5.4 years

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Answer #1

Answer:

Payback period ==> Investment req / Net CF

==>489,000/90,000 ==> 5.433 Years

The estimated cash payback period for the machine is==> 5.4 Years

Note: Annual operating income is not applicable in payback period

Therefore,

Option D is the correct answer (d. 5.4 years)

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