A Company Is Considering the Purchase of a New Piece

question 59

Multiple Choice

A company is considering the purchase of a new piece of equipment for $90,000. Predicted annual cash inflows from this investment are $36,000 (year 1) , $30,000 (year 2) , $18,000 (year 3) , $12,000 (year 4) and $6,000 (year 5) . The payback period is:

• A) 4.50 years.
• B) 4.25 years.
• C) 3.50 years.
• D) 3.00 years.
• E) 2.50 years.

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Definitions:

Expectancy Theory

A motivation theory suggesting that individuals are motivated to perform based on the expected outcome and the value of that outcome to them.

Motivated

Describes being driven or encouraged to act towards achieving a goal or fulfilling a need or desire.