Pitt Company Is Evaluating Two Possible Investments in Depreciable Plant

question 45

Multiple Choice

Pitt Company is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available: How long is the payback period for Investment B?

• A)3.63 years
• B)4.00 years
• C)2.40 years
• D)10.67 years

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Definitions:

Mark-Up

The amount added to the cost price of goods to cover overhead and profit in setting the selling price.

Cost Method

An accounting approach where investments are recorded at their acquisition cost, without reflecting the investor's share of the investee's profits or losses until dividends are received.

Effective Tax Rate

reflects the percentage of income paid as tax, taking into consideration both federal and state taxes, and deductions.

Consolidated Retained Earnings

The accumulated net income of a company after dividends are paid, combined from all its divisions or subsidiaries.