A.)

(Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine that costs $473,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

	Incremental Net Operating Income	Incremental Net Cash Flows
Year 1	$81,000	$155,000
Year 2	$87,000	$166,000
Year 3	$98,000	$175,000
Year 4	$61,000	$163,000
Year 5	$103,000	$165,000

Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period of this investment is closest to:

2.1 years

5.0 years

4.1 years

2.9 years

B.)

Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes in this problem.)

Investment required in equipment	$640,000
Annual cash inflows	$86,000
Salvage value	$0
Life of the investment	20 years
Required rate of return	9%

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

The payback period for the investment is closest to:

0.1 years

1.0 years

5.4 years

7.4 years