Questions 37 and 38 are based on the following information:

(Ignore income taxes in this problem.) Linley Company purchased a machine for P125,000 that will be depreciated on the straight-line basis over a five-year period with no salvage value. The related cash flow from operations is expected to be P45,000 a year. These cash flows from operations occur uniformly throughout the year.

37. What is the payback period?

a. 2.1 years. c. 2.8 years.

b. 2.3 years. d. 4.2 years.

38. What is the simple rate of return on the initial investment?

a. 16%. c. 28%.

b. 24%. d. 36%.