Logy Inc Is Evaluating Two Possible Investments in Depreciable Plant Assets

question 122

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 B.

• A) 3 years
• B) 2 years
• C) 4 years
• D) 5 years

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Definitions:

Cognitive Rationales

Logical reasons or explanations that stem from cognitive processes, used to understand or justify thoughts, beliefs, or actions.

Punishment

The application of a consequence in response to a behavior, intended to decrease or eliminate the occurrence of that behavior.

Temptation

A desire or urge to do something, often wrong or unwise, that is hard to resist.

Resistance

The refusal to accept or comply with something; the attempt to prevent something by action or argument.