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:

Comparative Advantage

The ability of a country or firm to produce a particular good or service at a lower opportunity cost than others, leading to more efficient global production and trade.

Dumping

The practice of selling a product in a foreign market at a price lower than its domestic market or below its cost of production, often to increase market share or eliminate surplus.

Per Capita GDP

is a measure of the economic output of a country divided by its population, providing an average economic welfare indicator.

Trade Barriers

Measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.