Logan, 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 $101,000 $151,000
Estimated useful life 10 years 10 years
Estimated residual value 0 $20,000
Estimated annual net cash inflow for 10 years $28,000 $47,000
Required rate of return 12% 12%
Calculate the payback period for Investment A. (Round your answer to two decimal places.)
A) 2.22 years
B) 2.89 years
C) 1.00 year
D) 3.61 years
D .D) Payback for Investment A = Amount invested / Expected annual net cash flow
= $101,000 / $28,000 = 3.61 years
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