Saturn Ltd

question 98

Multiple Choice

Saturn Ltd. wants to automate one of its production processes. The new equipment will cost $180,000. In addition, Saturn will incur installation and testing costs of $5,000 and $8,500 respectively. The expected life of the equipment is 8 years and the salvage value of the equipment is estimated at $18,000. The annual cash savings are estimated at $32,000. The company's required rate of return is 14%. Ignore income taxes. What is the payback period for this investment?

• A) 5.63 years
• B) 5.78 years
• C) 6.05 years
• D) 5.26 years
• E) The project does not payback.

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