An Anticipated Purchase of Equipment for $1,000,000, with a Useful

question 54

Multiple Choice

An anticipated purchase of equipment for $1,000,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: ? $$\begin{array} { c r r } \text { Year } & \text { Net Income } & \text { Net Cash Flow } \\1 & \$ 210,000 & \$ 400,000 \\2 & 180,000 & 320,000 \\3 & 145,000 & 280,000 \\4 & 125,000 & 270,000 \\5 & 60,000 & 220,000 \\6 & 60,000 & 220,000 \\7 & 60,000 & 220,000 \\8 & 60,000 & 220,000\end{array}$$ ?
What is the cash payback period?

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

---

Definitions:

Debit Balance

A debit balance is the amount of money that a business or individual owes; it reflects transactions that have been debited to an account, increasing the total debit.

Board Of Directors

A group of individuals elected by shareholders to oversee the management and make major decisions for a corporation.

Corporate Registrar

A corporate registrar is an entity responsible for maintaining a company’s register of shareowners and managing share issues and transfers.

Mutual Agency

The legal principle that allows each partner in a partnership firm to represent and make decisions for the firm.