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What is the payback period for the new machine

What is the payback period for the new machine

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Build Corporation wants to purchase a new machine for $306,000. Management predicts that the machine can produce sales of $203,000 each year for the next 8 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $76,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 11% on all investments.

 

What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.)

 

Multiple Choice
  •  

    2.4 years.

  •  

    2.6 years.

  •  

    3.0 years.

  •  

    3.5 years.

  •  

    4.1 years.

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