how to calculate payback period of an investment
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Question
Gull Inc. is considering the acquisition of equipment that costs $440,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are: (Ignore income taxes.)
|
Incremental net |
|
|
Year 1 |
$132,000 |
|
Year 2 |
$182,000 |
|
Year 3 |
$143,000 |
|
Year 4 |
$152,000 |
|
Year 5 |
$142,000 |
|
Year 6 |
$122,000 |
The payback period of this investment is closest to:
a. 2.7 years
b. 2.9 years
c. 4.8 years
d. 3.3 years
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