An Anticipated Purchase of Equipment for $520,000, with a Useful

question 3

Multiple Choice

An anticipated purchase of equipment for $520,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: $\begin{array}{lll}\text { Year } &\text {Net Income } &\text { Net Cash Flow }\\1 & \$ 60,000 & \$ 120,000 \\2 & 50,000 & 110,000 \\3 & 50,000 & 110,000 \\4 & 40,000 & 100,000 \\5 & 40,000 & 80,000 \\6 & 40,000 & 80,000 \\7 & 40,000 & 60,000 \\8 & 40,000 & 60,000\end{array}$ What is the cash payback period?

• A) 5 years
• B) 4 years
• C) 6 years
• D) 3 years

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