Logy Inc Is Evaluating Two Possible Investments in Depreciable Plant Assets

question 43

Multiple Choice

Logy Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available: $$\begin{array} { | l | r | r | } \hline & \text { Investment A } & \text { Investment B } \\\hline \text { Initial capital investment } & \$ 100,000 & \$ 150,000 \\\hline \text { Estimated useful life } & 10 \text { years } & 10 \text { years } \\\hline \text { Estimated residual value } & 0 & \$ 20,000 \\\hline \text { Estimated annual net cash inflow for 10 years } & \$ 20,000 & \$ 40,000 \\\hline \text { Required rate of return } & 10 \% & 12 \% \\\hline\end{array}$$ Calculate the payback period for Investment A.

• A) 3 years
• B) 4 years
• C) 1 year
• D) 5 years

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Definitions:

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