In: Finance
If an asset costs $240,000 and is expected to have a $40,000 salvage value at the end of its ten-year life, and generates annual net cash inflows of $40,000 each year, the cash payback period is
A. |
7 years. |
|
B. |
6 years. |
|
C. |
4 years. |
|
D. |
5 years. |
ANSWER : B: 6 YEARS
ACTUALLY, BY LOOKING AT SUM ONLY, WE CAN SAY THAT PAYBACK PERIOD IS 6 YEARS.
FORMULA = INITIAL INVESTMENT/ANNUAL CASH FLOW = 240000/40000 = 6 YEARS
BUT SALVAGE VALUE IS GIVEN, SO WE NEED TO PREPARE CUMULATICE CFAT (CCFAT) COLUMN