Pique Corporation wants to purchase a new machine for $298,000. Management predicts that the machine can produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $72,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 50%. Management requires a minimum after-tax rate of return of 15% on all investments.

What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.)

Multiple Choice

• 3.4 years.

• 2.5 years.

• 4.0 years.

• 2.9 years.

• 2.3 years.