Question

Rihanna Company is considering purchasing new equipment for $507,300. It is expected that the equipment will produce net annual cash flows of $57,000 over its 10-year useful life. Annual depreciation will be $50,730. Compute the cash payback period. (Round answer to 1 decimal place, e.g. 10.5.)

Answer 1

8.9 years

Step-by-step explanation:

The formula to compute the payback period is shown below:

= Initial investment ÷ Net cash flow

where,

Initial investment is $263,000

And, the annual net cash flow is $57,000

Now put these values to the above formula

So, the value would equal to

= ($507,300) ÷ ($57,000)

= 8.9 years

The depreciation expense is ignored