If an asset costs $16,000, has an expected useful life of 8 years, is expected to have a $2,000 salvage value and generates net annual cash inflows of $2,000 a year, the cash payback period is
A)8 years.
B)7 years.
C)6 years.
D)5 years.

Question

Quizplus · Accepted Answer

The cash payback period is the number of years it takes for the net cash inflows from an investment to equal the initial investment. In this case, the initial investment is $16,000 and the net annual cash inflows are $2,000. Therefore, the cash payback period is 8 years ($16,000 / $2,000 = 8 years).

If an Asset Costs $16,000, Has an Expected Useful Life