Given the Following Information and Assuming Straight-Line Depreciation to Zero

question 149

Multiple Choice

Given the following information and assuming straight-line depreciation to zero, what is the payback period for this project? Initial investment = $500,000; life = five years; cost savings =
$160,000 per year; salvage value = $30,000 in year 5; tax rate = 34%; discount rate = 13%.

• A) 2.5 years
• B) 3.6 years
• C) 3.9 years
• D) 4.4 years
• E) The payback period is greater than the project's life.

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Definitions:

Inflation Adjusted Risk

Refers to the danger of losing purchasing power of an investment due to inflation outpacing the returns.

Systematic Risk

The inherent risk of exposure to market changes that cannot be diversified away, affecting all securities in a similar manner.

Portfolio Beta

An evaluation of a portfolio's systemic risk in relation to the entire market's volatility.