Zebulon, Inc Compute the Payback Period for Each Investment

question 151

Essay

Zebulon, Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available:
$$\begin{array} { l r r } & \text { Investment A } & \text { Investment B } \\\text { Initial capital investment } & \$ 275,000 & \$ 225,000 \\\text { Estimated useful life } & 8 \text { years } & 7 \text { years } \\\text { Estimated residual value } & \$ 15,000 & \$ 20,000 \\\text { Estimated annual net cash inflow for 10 years } & \$ 55,000 & \$ 35,000 \\\text { Required rate of return } & 12 \% & 12 \%\end{array}$$ Compute the payback period for each investment. Show your calculations and round to one decimal place.

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