Assume the following information for a capital budgeting proposal with a five-year time horizon:

Initial investment:

Cost of equipment (zero salvage value)

$ 560,000

Annual revenues and costs:

Sales revenues

$ 300,000

Variable expenses

$ 130,000

Depreciation expense

$ 50,000

Fixed out-of-pocket costs

$ 40,000

The payback period for this investment is closest to:

1. 3.29 years

2. 7.00 years

3. 4.31 years

4. 1.98 years