Answer:
2.69 years
Explanation:
Payback period calculates the amount of the time it takes to recover the amount invested in a project from its cumulative cash flows.
To derive cash flows from net income, add depreciation to the net income.
Straight line depreciation = (Cost of asset - Salvage value) / useful life
$150,000 / 5 = $30,000
The depreciation expense each year would be $30,000.
Cash flow in year 1 = $30,000 + $10,000 = $40,000
Cash flow in year 2 = $30,000 + $25,000 = $55,000
Cash flow in year 3 = $30,000 + $50,000 = $80,000
Cash flow in year 4 = $30,000 + $37,500 = $67,500
Cash flow in year 5 = $30,000 + $100,000 = $130,000
In the first year, -150,000 + $40,000 = $-110,000 is recovered
In the second year, $-110,000 + $55,000 = $-55,000 is recovered
In the third year, $-55,000 + $80,000 = $25,000 is recovered.
The cash payback period is 2 years + $-55,000 / $80,000 = 2.69 years
I hope my answer helps you
