(Ignore income taxes in this problem.) Jarvey Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value.The project would provide net operating income each year as follows for the life of the project: The company's required rate of return is 12%.The payback period for this project is closest to:

A) 3 years
B) 2 years
C) 4.28 years
D) 9 years

Question

(Ignore income taxes in this problem.) Jarvey Corporation is studying a project that would have a ten-year life and would require a $450,000 investment in equipment which has no salvage value.The project would provide net operating income each year as follows for the life of the project:

The company's required rate of return is 12%.The payback period for this project is closest to:

A) 3 years
B) 2 years
C) 4.28 years
D) 9 years

Orange Knight · Accepted Answer

Final Answer : A, Explanation :    Payback period = Investment required ÷ Annual net cash inflow= $450,000 ÷ $150,000 per year = 3 years

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