Question

If an asset costs $132000 and is expected to have a $22000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $22000 each year, the cash payback period is:_______.

a. 5 years.
b. 6 years.
c. 7 years.
d. 4 years.

Answer 1

b. 6 years.

Step-by-step explanation:

The cash payback period is the length of time it takes for the future cash flows to equal the amount invested in a project.

where, Amount Invested = Sum of Cash flows

therefore,

$132000 = $22000 + $22000 + $22000+ $22000 + $22000 + $22000

thus,

It takes 6 years for cashflows to equal $132000.