Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data
Proposal X Proposal Y
Investment $10,700,000 $580,000
Useful life 5 years 5 years
Estimated annual net cash inflows for 5 years $2,140,000 $103,000
Residual value $50,000 $26,000
Depreciation method Straight-line Straight-line
Required rate of return 12% 13%
Calculate the payback period for Proposal X.
A) 5 years
B) 4 years
C) 9 years
D) 8 years
A .A) Payback = Amount invested / Expected annual net cash inflow
Payback for Proposal X = $10,700,000 / $2,140,000 per year = 5 years
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