Logan, Inc -
How Long Is the Payback Period for Investment A

question 109

Multiple Choice

Logan, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:
$\begin{array}{|l|r|r|}\hline& \text { Investment A } & \text { Investment B } \\ \hline \text { Initial capital investment } & \$ 60,000 & \$ 90,000 \\\hline \text { Estimated useful life } & 3 \text { year } & 3 \text { years } \\\hline \text { Estimated residual value } & -0- & -0-\\\hline \text { Estimated annual net cash inflow for 3 years } & \$ 25,000 & \$ 40,000 \\\hline \text { Reguired rate of retum } & 10 \% & 12 \% \\\hline\end{array}$

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How long is the payback period for Investment A?

• A) 0.4 years
• B) 2.4 years
• C) 2.5 years
• D) 3.0 years

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Definitions:

Exemption Clause

A part of a contract that seeks to limit a party's liability for breaches of the contract or negligence, often subject to legal restrictions.

Bailment Contract

An agreement where physical possession of personal property is transferred from one party to another, with the understanding that the property will be returned.

Contract Frustration

A legal principle that releases both parties from their contractual obligations when an unforeseen event renders the contract physically or commercially impossible to perform.

Commission Payment

A method of remuneration for services or facilitating transactions, typically calculated as a percentage of the transaction value.