The following details are provided by a manufacturing company
Product line
Investment $1,100,000
Useful life 12 years
Estimated annual net cash inflows for first year $400,000
Estimated annual net cash inflows for second year $390,000
Estimated annual net cash inflows for next ten years $380,000
Residual value $70,000
Depreciation method Straight-line
Required rate of return 14%
Calculate the payback period for the investment. (Round your answer to two decimal places.)
A) 2.75 years
B) 2.82 years
C) 2.55 years
D) 2.77 years
B .B) Payback = Amount invested / Expected annual net cash flow
= 2 years + [($1,100,000 - $790,000 )] / $380,000 = 2.82 years
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