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Detroit Company, an American chemical company, is planning to buy new equipment to expand their production of a popular solvent. Estimated data are as follows:
Detroit Company, an American chemical company, is planning to buy new equipment to expand their production of a popular solvent. Estimated data are as follows: $370,000 10 years Cash cost of new equipment now Estimated life in years Terminal salvage value Incremental revenues per year Incremental expenses per year other than depreciation $50,000 $330,000 $165,000 Assume a 60% flat rate for income taxes. The company receives all revenues and pays all expenses other than depreciation in cash. Use a 14% discount rate. Assume that the company uses ordinary straight line depreciation based on a 10-year recovery period for tax purposes. Taxes are paid as incurred. Also assume that the company depreciates the original cost less the terminal salvage value. Compute the payback period. OA. 4.34 years OB. 4.34 months OC. 2.243 years OD 2.243 months
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