An Anticipated Purchase of Equipment for $1,200,000, with a Useful

question 28

Multiple Choice

An anticipated purchase of equipment for $1,200,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows: $$\begin{array}{l}\text { Net Cash}& \text {Net Income Flow}&\text { Year}\\\$ 330,000 & \$ 180,000&1 \\320,000 & 170,000&2 \\780,000 & 130,000&3 \\770,000 & 120,000&4 \\200,000 & 50,000 &5\\200,000 & 50,000&6 \\200,000 & 50,000 &7\\200,000 & 50,000&8\end{array}$$ What is the cash payback period?

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

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Definitions:

Fair Dealing

A legal doctrine aiming to ensure honesty and fairness in transactions and agreements, preventing parties from taking advantage of each other.

Franchise Arrangement

A business model that allows individuals or entities to operate their business using the branding and systems of an established company in exchange for a fee.

Winding Up

The second of two stages in the termination of a partnership or corporation, in which the firm’s assets are collected, liquidated, and distributed, and liabilities are discharged.

Franchisor's Property

Assets, trademarks, or intellectual property owned by the franchisor that are licensed to franchisees under a franchise agreement.