FIN. 20

Richol Corp is considering an investment in new equipment costing $180,000. The equipment will be depreciated on a straight line basis over 5 year life and is expected to generate net cash inflows of $45,000 the first year, $65,000 the second year and $90,000 every year thereafter until the fifth year. What is the payback period for this investment? The equipment has no residual value.

a. 2.37 years b. 4.00 years c. 2.78 years d. 2.00 years