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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