Giraldi Company has identified that the cost of a new computer will be $60,000, 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) 30 years.
B) 20 years.
C) 12 years.
D) 7.5 years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by dividing the initial investment by the annual cash inflow. The annual cash inflow is the net income increase plus the depreciation expense, which is $5,000 + $3,000 = $8,000. Therefore, the cash payback period is $60,000 / $8,000 = 7.5 years.

Giraldi Company Has Identified That the Cost of a New