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

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Business

Raquel Garcia

26 May, 10:43

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

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Belinda · 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.