Question

Rihanna Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $60,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period

Answer 1

7.5 years

Step-by-step explanation:

Payback is the period a project takes to recover its initial capital outflow.

The formula for calculating the payback period = Initial investments divide by net cash flow per period.

Payback Period = Initial Investments/ Net Cash Flow per Period

Payback period = $450,000/ $60,000

Payback period =7.5 years