Your answer is incorrect because you're using net annual cash flow, which includes depreciation. However, depreciation is a non-cash expense and should not be included in the calculation of cash payback period.
To calculate the cash payback period, you need to use the net income increase as your net annual cash flow, which is $5,000.
Cash payback period = Cost of capital investment / Net annual cash flow
= $48,000 / $5,000
= 9.6 years
Therefore, the cash payback period is 9.6 years.
Scary Harry's 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:
Can somebody explain what I did wrong.
I use this formula to solve: Cash payback period= Cost of capital investment/Net annual cash flow
My answer is $48000/($5000-$3000)=24 years
Why is my answer incorrect
3 answers
Than you
You're welcome! Let me know if you have any further questions.