Question

The management of Wyoming Corporation is considering the purchase of a new machine costing $375,000. The company's desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the foregoing information, use the following data in determining the acceptability of this investment:

Answer 1

Complete question:

Year Income from Operations Net Cash Flow

1 $18,750 $93,750

2 18,750 93,750

3 18,750 93,750

4 18,750 93,750

5 18,750 93,750

Answer and Explanation:

The cash payback period: (the period in which the full initial payment will be paid)

Initial payment/annual net cash flow

375,000/93750 = 4 years.