Brandon Company is contemplating the purchase of a new piece of equipment for $49,000. Brandon is in the 20% income tax bracket. Predicted annual after-tax cash inflows from this investment are $18,000, $12,000, $9,000, $11,000 and $5,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.

The payback period in years (rounded to the nearest 10^th of a year) for this proposed investment is (assume that the after-tax cash inflows occur evenly throughout the year):

Multiple Choice

• 4.2 years.

• 4.0 years.

• 2.7 years.

• 2.2 years.

• 3.2 years.