Boyle Company Is Evaluating Two Possible Investments in Depreciable Plant

question 14

Multiple Choice

Boyle Company is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: $$\begin{array} { | l | r | r | } \hline & \text { Investment A } & \text { Investment B } \\\hline \text { Initial capital investment } & \$ 100,000 & \$ 150,000 \\\hline \text { Estinated useful life } & 3 \text { years } & \text { 3 years } \\\hline \text { Estimated residual value } & \$ 10,000 & \$ 15,000 \\\hline \begin{array} { l } \text { Estimated annual get cash inflow } \\\text { Far 3 years }\end{array} & \$ 25,000 & \$ 40,000 \\\hline \text { Required rate of return } & 10 \% & 12 \% \\\hline\end{array}$$ The present value factors of $1 due 3 years from now:
$\begin{array} { | c | c | } \hline 8 \% & 0.794 \\\hline 10 \% & 0.751 \\\hline 12 \% & 0.712 \\\hline 14 \% & 0.675 \\\hline 16 \% & 0.641 \\\hline\end{array}$
The annuity present value factors of $1 due at the end of each of 3 years:
$\begin{array} { | c | c | } \hline 8 \% & 2.577 \\\hline 10 \% & 2.487 \\\hline 12 \% & 2.402 \\\hline 14 \% & 2.322 \\\hline 16 \% & 2.246 \\\hline\end{array}$
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How long is the payback period for Investment A?

• A)2.49 years
• B)3.60 years
• C)4.00 years
• D)10.00 years

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Definitions:

Opposition

Opposition or disagreement demonstrated through actions or discussions against dominant ideologies, rules, or ruling bodies.

"Dole"

A term commonly used in the UK to refer to government-provided unemployment benefits.

Fireside Chats

A series of evening radio addresses given by U.S. President Franklin D. Roosevelt between 1933 and 1944 to directly communicate with the American public.

21st Amendment

The amendment to the United States Constitution that repealed the 18th Amendment, ending the nationwide prohibition on alcohol in 1933.