Question

Heidi company is considering the acquisition of a machine that costs $546,000. the machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash inflow of $108,000, and annual operating income of $84,755. the estimated cash payback period for the machine i

Answer 1

Approximately 6 years

Step-by-step explanation:

To calculate the cash payback period, we need to determine how long it will take for the cumulative net cash inflows to equal or exceed the initial cost of the machine.

Given:

Initial cost of the machine: $546,000

Annual net cash inflow: $108,000

To find the cash payback period, we divide the initial cost by the annual net cash inflow:

Cash Payback Period = Initial Cost / Annual Net Cash Inflow

Cash Payback Period = $546,000 / $108,000

Cash Payback Period ≈ 5.0556 years

Since the payback period is calculated in years, rounding up to the nearest whole year, the estimated cash payback period for the machine is approximately 6 years.