Zebulon,Inc Compute the Payback Period for Each Investment

question 26

Essay

Zebulon,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available:
$$\begin{array} { l r r } & \text { Investment A } & \text { Investment B } \\\text { Initial capital investment } & \$ 275,000 & \$ 225,000 \\\text { Estimated useful life } & 8 \text { years } & 7 \text { years } \\\text { Estimated residual value } & \$ 15,000 & \$ 20,000 \\\text { Estimated annual net cash inflow for 10 years } & \$ 55,000 & \$ 35,000 \\\text { Required rate of return } & 12 \% & 12 \%\end{array}$$ Compute the payback period for each investment.Show your calculations and round to one decimal place.

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Definitions:

Taxable Income

The amount of income that is subject to taxes, after all deductions and exemptions have been factored in.

After-Tax Income

The amount of income left after all taxes have been deducted.

Progressive Tax

A tax system where the tax rate increases as the taxable amount increases, typically applied to income tax to ensure those with higher earnings pay a higher rate of tax relative to their income.

Tax Rates

Percentages at which income, property, and sales are taxed by governments, impacting individuals and businesses.