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Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $140,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows would increase by $40,000. Compute the cash payback period. (Round answer to 2 decimal places, e.g. 10.52.) Cash payback periodenter the Cash payback period in years rounded to 2 decimal places years.

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abiolataiwo2015

Answer:

3.5years

Explanation:

Computation for the cash payback period

First step is to calculate Net cash flow per year using this formula

Net cash flow per year = Cash inflow - Cash outflow

Let plug in the formula

Net cash flow per year= $80,000 - $40,000

Net cash flow per year= $40,000

Now let calculate Cash payback period using this formula

Cash payback period = Initial investment / Net cash flow per year

Let plug in the formula

Cash payback period = $140,000 / $40,000

Cash payback period= 3.5years

Therefore the Cash payback period is 3.5years

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