Paramount Carpets is considering purchasing new equipment costing $730,000
The company's management has estimated that the equipment will generate cash flows as follows:
Year 1 $204,000
2 204,000
3 266,000
4 266,000
5 150,000
Considering the residual value is zero, calculate the payback period. (Round your answer to two decimal places.)
A) 4.61 years
B) 3.21 years
C) 3.42 years
D) 3.70 years
B .B)
Net cash
outflows Net cash inflows
Amount
Year invested Annual Accumulated
0 730,000
1 $204,000 $204,000
2 204,000 408,000
3 266,000 674,000
4 266,000 940,000
5 150,000 1,090,000
Payback = 3 years + ($730,000 âˆ' $674,000 ) / $266,000 = 3.21 years
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