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Rihanna Company is considering purchasing new equipment for $578,500. It is expected that the equipment will produce net annual cash flows of $65,000 over its 10-year useful life. Annual depreciation will be $57,850. Compute the cash payback period.

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Answer:

The answer is 8.9 years

Explanation:

Solution

Given that:

purchase of new equipment = $578,500

Net annual cash flows =$65,000

The useful life = 10 years

Annual depreciation = $57.850

Now, we have to compute the cash payback period which given below:

The payback period (cash) = cost of capital investment/net annual cash flows

=$578.500/$65,000

=8.9 years

The cash payback period is 8.9 years

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