Dragonfly,Inc Calculate the Payback Period for Investment A

question 144

Multiple Choice

Dragonfly,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: $$\begin{array} { | l | r | r | } \hline & \text { Investment A } & \text { Investment B } \\\hline \text { Initial capital investment } & \$ 101,000 & \$ 151,000 \\\hline \text { Estimated useful life } & 10 \text { years } & 10 \text { years } \\\hline \text { Estimated residual value } & 0 & \$ 20,000 \\\hline \text { Estimated annual net cash inflow for 10 years } & \$ 28,000 & \$ 47,000 \\\hline \text { Required rate of return } & 12 \% & 12 \% \\\hline\end{array}$$ 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

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Definitions:

Long-run Average Total Costs

The average cost per unit of output where all inputs, including capital, are variable and the firm has adjusted all inputs to find the lowest average cost.

Long-run Marginal Cost

The change in total cost when producing one additional unit of a product or service in the long term, where all inputs are considered variable.

Economies of Scale

Enterprises gain cost benefits from their operation size, as the cost for each unit produced typically drops when the scale enlarges because fixed expenses are distributed across a greater number of output units.

Efficient Scale

The level of production at which a firm can produce its product at the lowest average cost per unit.