Question

Giraldi company has identified that the cost of a new computer will be $48,000, 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:

Answer 1

Cost: $48,000

Net income (increase): $5,000

Depreciation Expense: $3,000

Payback period = ?

Formula: Cost / ( Net Income + Depreciation Expense) = Payback Period

Solution: $48,000 / ( $5,000 + $3,000) = 6

Answer: The cash payback period is 6 years