Payback Example: Pizza Hat

Pizza Hat plans to purchase a new oven for $$95,000$ with an estimated useful

life of four years and salvage value of $$5,000.$ There is no anticipated change in

working capital. Estimated annual cash flow from the oven is $$36,000.$ Pizza Hat

has a $12\%$ after$-$tax RRR and a $40\%$ marginal income tax rate. Depreciation is

calculated on a straight$-$line basis for accounting purposes and the oven is

subject to a $20\%$ CCA rate. Assume the oven is the only asset in the CCA class.

$1.$ What is the payback period of the oven?

$31$