Fact Pattern: MS Trucking is considering the purchase of a new piece of equipment that has a net initial investment with a present value of $300,000. The equipment has an estimated useful life of 3 years. For tax purposes, the equipment will be fully depreciated at rates of 30%, 40%, and 30% in Years 1, 2, and 3, respectively. The new machine is expected to have a $20,000 salvage value. The machine is expected to save the company $170,000 per year in operating expenses. MS Trucking has a 40% marginal income tax rate and a 16% cost of capital. Discount rates for a 16% rate are as follows:
Present Value of an Ordinary Annuity of $ Present Value of $1
Year 1 0.862 0.862
Year 2 1.605 0.743
Year 3 2.246 0.641
Question: 267
The payback period for this investment is
A.
2.08 years.
B.
2.79 years.
C.
2.09 years.
D.
3.00 years.
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Elsayed Elsayed Ali Aboelsaoud
Giza
Egypt
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