Landmark Prints is considering an investment in new equipment costing $502,000
The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $122,000 the first year, $158,000 the second year, and $160,000 every year thereafter until the fifth year. What is the payback period for this investment? The residual value is zero. (Round your answer to two decimal places.)
A) 4.30 years
B) 3.39 years
C) 2.80 years
D) 3.11 years
B .B)
Net cash
outflows Net cash inflows
Amount
Year invested Annual Accumulated
0 502,000
1 $122,000 $122,000
2 158,000 280,000
3 160,000 440,000
4 160,000 600,000
5 160,000 760,000
Payback = Amount invested / Expected annual net cash flow = 3 years + ($502,000 âˆ' $440,000 ) / $160,000 = 3.39 years
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