Question

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 A: 10 years B: 20 years C: 8 years D: 5 years

Answer 1

Answer:

 D: 5 years

Explanation:

Cash payback period calculates the amount of years it takes for the amount invested in a project/ product / equipment to be recouped from revenue.

The cost of the computer is $40,000

Net income increases by $ 5,000 yearly

Depreciation expense is $3,000 yearly

Revenue = $5000 +$3000=$8,000

Pay back period = $40,000 / $8000 = 5 years

I hope my answer helps you.