Davidson, Inc

question 98

Multiple Choice

Davidson, Inc., is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. Payback for the project is

• A)3.00 years.
• B)3.50 years.
• C)5.00 years.
• D)2.38 years.

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