Consider the Following Ten-Year Project

question 24

Multiple Choice

Consider the following ten-year project.The initial after-tax outlay or after-tax cost is $1,500,000.The future after-tax cash inflows each year for years 1 through 10 are $400,000 per year.What is the payback period without discounting cash flows?

• A)10 years
• B)5 years
• C)3.75 years
• D)1.5 years

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life to reflect its decrease in value over time.

Store Equipment

Fixed assets specifically purchased for use in a retail store setting, such as shelving, cash registers, and display units.

Raw Materials

Basic materials that are used in the initial stages of the production process, which will be transformed into finished goods.

Inventory

The goods and materials held by a business for the purpose of sale, manufacturing, or production.