Question

Q 12.4: chaz denver company has identified that the cost of a new computer will be $40,000, but with the use of the new computer, net income will increase by $5,000 a year. if depreciation expense is $3,000 a year, the cash payback period is

Answer 1

Payback period is the length of time a project recovers back the money invested.

Payback period= invested cash/ Net annual cash flow

Therefore payback period =40,000/5000

                                               =8.0 years

Since depreciation is a non- cash expense it is ignored while calculating payback period.