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
Payback = 2 years + (10,000 / 118,000)
The correct option is D.
Cumulative Cash Flows
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