Gateway Graphics is considering an investment in new printing 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) 3.39 years
Payback = Amount invested / Expected annual net cash flow = 3 years + ($502,000 ? $440,000) / $160,000 = 3.39 years
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