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Calculate the payback period

Simms Manufacturing is considering two alternative investment proposals with the following data:

Proposal X Proposal Y
Investment $620,000 $400,000
Useful life 8 years 8 years
Estimated annual net
cash inflows for 8 years $130,000 $80,000
Residual value $60,000 $0
Depreciation method Straight-line Straight-line
Required rate of return 14% 10%

How long is the payback period for Proposal X?

a. 4.50 years

b. 4.77 years

c. 8 years

d. 10.33 years


Solution Preview

Annual net cash inflow=130,000
For the first four years, the ...