Ask Question
3 June, 13:07

Ataxia Fitness Center is considering an investment in some additional weight training equipment. The equipment has an estimated useful life of 4 years with no salvage value at the end of the 4 years. Ataxia's internal rate of return on this equipment is 5%. Ataxia's discount rate is also 5%. The payback period on this equipment is closest to (Ignore income taxes.):

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factorfs) using the tables provided.

a. 4 years

b. 3.55 years

c. 2.00 years

d. 4.65 years

+1
Answers (1)
  1. 3 June, 16:35
    0
    b. 3.55 years

    Explanation:

    The payback period is basically the amount of time an investor needs to recover his/her initial investment.

    lets assume initial investment = $1,000

    when you calculate IRR, the present value of the cash flows = initial investment

    the present value of an annuity for 4 years and 5% is 3.5460

    $1,000 = yearly cash flow x 3.546

    yearly cash flow = $1,000 / 3.546 = $282

    payback period = $1,000 / 282 = 3.546 years ≈ 3.55 years
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Ataxia Fitness Center is considering an investment in some additional weight training equipment. The equipment has an estimated useful life ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers