## (Solved) The Fig Tree is considering purchasing some new equipment at a

The Fig Tree is considering purchasing some new equipment at a cost of \$146,000. The equipment has a 3-year life and is expected to produce cash inflows of \$42,000 in year 1, \$94,000 in year 2, and \$118,000 in year 3. The equipment will be depreciated using straight-line depreciation to a zero book value over the life of the project. What is the payback period?

A. 1.78 years

B. 1.86 years

C. 2.01 years

D. 2.08 years

Year

0

1

2

3

Cash Flows

-146000

42000

94000

118000

Payback = 2 years + (10,000 / 118,000)

Payback Period

The correct option is D.

2.08

Cumulative Cash Flows

-146000

-104000

-10000

108000

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This question was answered on: Oct 15, 2019

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