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(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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Oct 15, 2019

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