Brandon Company Is Contemplating the Purchase of a New Piece

question 48

Multiple Choice

Brandon Company is contemplating the purchase of a new piece of equipment for $45,000. Brandon is in the 30% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $15,000, $9,000, $6,000 and $3,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.

The payback period in years (rounded to the nearest 10th of a year) for this proposed investment is (assume that the after-tax cash inflows occur evenly throughout the year) :

• A) 2.5 years.
• B) 3.0 years.
• C) 3.5 years.
• D) 4.3 years.
• E) 4.5 years.

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Definitions:

Discrimination

Involves the unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, or sex.

Hatfield and Berscheid

Psychologists known for their research in the area of interpersonal attraction and love.

Passionate

Showing or caused by strong feelings or a strong belief.

Jealous

Feeling or showing an envious resentment of someone or their achievements, possessions, or perceived advantages.