Territories Cable, Inc., is considering the purchase of new data transmission equipment. Estimated annual cash revenues for the new equipment are $1 million, and operating costs (including depreciation of $400,000) are $825,000. The equipment costs $2 million, it has a five-year life, and it will have no residual value at the end of the five years.

Compute the payback period for the piece of equipment. Round your answer to one decimal place.

Hint

Payback Period

=

Cost of Investment Annual Net Cash Inflows

You should use the following steps.

Determine the cost of the investment.

Determine the annual net cash inflows, which are the annual cash revenues minus the cash expenses. Eliminate the effects of all noncash revenue and expense items included in the analysis of net income to determine cash revenues and cash expenses.