Palmer Corp

question 29

Multiple Choice

Palmer Corp.is considering the purchase of a new piece of equipment.The cost savings from the equipment would result in an annual increase in net income after tax of $100,000.The equipment will have an initial cost of $400,000 and have a 7-year life.If the salvage value of the equipment is estimated to be $75,000,what is the payback period?

• A)2.73 years
• B)4.00 years
• C)4.75 years
• D)7.00 years