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

question 32

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 B?

• A) 0.44 years
• B) 2.25 years
• C) 2.35 years
• D) 3.00 years

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Definitions:

Consolidated Financial Statements

Financial statements that aggregate the financial position of a parent company and its subsidiaries into one document, showing the overall health of the corporate group.

Inventory Purchase

The acquisition of goods and materials that a company intends to sell, considered as a current asset on the balance sheet.

Perpetual Inventory Method

A method of accounting that instantly documents the sale or acquisition of inventory utilizing computerized point-of-sale systems and software for managing enterprise assets.

Gross Profit Rate

The ratio of gross profit (sales minus cost of goods sold) to net sales, showing the efficiency at which a company produces its goods.