Determine the estimated pv payback period

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Question - Plant Company is contemplating the purchase of a new piece of equipment for $39,000. Plant is in the 40% income tax bracket. Predicted annual after-tax cash inflows from this investment are $17,000, $14,000, $2,000, $9,000 and $6,000 for years 1 through 5, respectively. The firm uses straight-line depreciation with no residual value at the end of five years.

Assume that the hurdle rate for accepting new capital investment projects for the company is 4%, after-tax. (Note: PV $1 factors for 4% are as follows: for year 1 = 0.962, for year 2 = 0.925, for year 3 = 0.889, for year 4 = 0.855, for year 5 = 0.822; the PV annuity factor for 4%, 5 years = 4.452.) At an after-tax discount rate of 4%, determine the estimated PV (present value) payback period, in years (rounded to two decimal places)?

Reference no: EM133133380

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