First Choice Carpets Is Considering Purchasing New Weaving Equipment Costing

question 73

Multiple Choice

First Choice Carpets is considering purchasing new weaving equipment costing $730,000.The company's management has estimated that the equipment will generate cash inflows as follows: $$\begin{array} { | r | r | } \hline \text { Year 1 } & \$ 204,000 \\\hline 2 & 204,000 \\\hline 3 & 266,000 \\\hline 4 & 266,000 \\\hline 5 & 150,000 \\\hline\end{array}$$ Considering the residual value is zero,calculate the payback period.(Round your answer to two decimal places.)

• A) 4.61 years
• B) 3.21 years
• C) 3.42 years
• D) 3.70 years

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Definitions:

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its securities holders, weighted by the proportion each financing source contributes to the total capital structure.

Corporate Tax Rates

The percentage of corporate profits taken as tax by the government.

After-Tax Cost

The net cost of an investment or transaction after considering the effects of taxes on its overall expenses or returns.