Consider the Following Ten-Year Project

question 43

Multiple Choice

Consider the following ten-year project.The initial after-tax outlay or after-tax cost is $1,000,000.The future after-tax cash inflows each year for years 1 through 10 are $200,000 per year.What is the payback period without discounting cash flows?

• A)10 years
• B)5 years
• C)2.5 years
• D)0.5 years

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Definitions:

Lessee

An individual or entity that leases or rents an asset from its owner, known as the lessor.

Captive Finance Company

Wholly owned subsidiary that handles credit extension and receivables financing through commercial paper.

Wholly Owned Subsidiary

A company whose entire stock is held by another company, making it completely controlled by the parent company.

Manufacturer

A type of business or company that produces finished goods from raw materials in large quantities for sale.