The Following Details Are Provided by a Manufacturing Company Calculate the Payback Period for the Investment

question 21

Multiple Choice

The following details are provided by a manufacturing company. $$\begin{array} { | l | r | } \hline & \text { Product line } \\\hline \text { Investment } & \$ 1,000,000 \\\hline \text { Useful life } & 12 \text { years } \\\hline \text { Estimated annual net cash inflows for first year } & \$ 400,000 \\\hline \text { Estimated annual net cash inflows for second year } & \$ 350,000 \\\hline \text { Estimated annual net cash inflows for next ten years } & \$ 300,000 \\\hline \text { Residual value } & \$ 50,000 \\\hline \text { Depreciation method } & \text { Straight-line } \\\hline \text { Required rate of return } & 12 \% \\\hline\end{array}$$ Calculate the payback period for the investment.

• A) 2.5 years
• B) 2.83 year
• C) 3.0 years
• D) 3.5 years

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