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.