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8 February, 08:11

Oriental Corporation has gathered the following data on a proposed investment project:

Investment in depreciable equipment $ 200,000

Annual net cash flows $ 50,000

Life of the equipment 10 years

Salvage value $ 0

Discount rate 10 %

The company uses straight-line depreciation on all equipment. Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period for the investment would be: Multiple Choice

a. 2.41 years

b. 0.25 years

c. 10 years

d. 4 years

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Answers (1)
  1. 8 February, 09:37
    0
    d. 4 years

    Explanation:

    The formula to compute the payback period is shown below:

    = Initial investment : Net cash flow

    where,

    Initial investment is $200,000

    And, the net cash flow = $50,000

    Now put these values to the above formula

    So, the value would equal to

    = ($200,000) : ($50,000)

    = 4 years

    All other information which is given is not relevant. Hence, ignored it
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