Nance Company is considering buying a machine for $90,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate net income of $3,000 each year. The cash payback on this investment is
A) 15 years.
B) 10 years.
C) 7.5 years.
D) 6 years.

Question

Quizplus · Accepted Answer

Cash payback = Initial investment / Annual cash inflow
In this case, the initial investment is $90,000 and the annual cash inflow is $3,000. Therefore, the cash payback period is:
Cash payback = $90,000 / $3,000 = 30 years / 4 = 7.5 years. 
Therefore, the best choice is C.

Nance Company Is Considering Buying a Machine for $90,000 with an Estimated