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:

Null Hypothesis

A default hypothesis that there is no significant effect or difference, usually tested against an alternative hypothesis in statistical analysis.

Indicator Variable

A variable used in statistical modeling and analysis that assigns a value of 0 or 1 to note the absence or presence of a particular condition or attribute.

Logistic Regression

A statistical analysis method used for prediction of a binary outcome, based on one or more predictor variables.

Odds Ratio

A measure of association between an exposure and an outcome, indicating the odds of an outcome occurring with an exposure compared to without.