Joanne, Inc is evaluating two possible investments in depreciable plant assets
The company uses the straight-line method of depreciation. The following information is available:
Investment A Investment B
Initial capital investment $107,000 $159,000
Estimated useful life 10 years 10 years
Estimated residual value 0 $26,000
Estimated annual net cash inflow for 10 years $28,000 $46,000
Required rate of return 10% 14%
Calculate the payback period for Investment B. (Round your answer to two decimal places.)
A) 3.46 years
B) 1.94 years
C) 2.89 years
D) 3.82 years
A .A) Payback for Investment B = Amount invested / Expected annual net cash flow
= $159,000 / $46,000 = 3.46 years
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