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$200,000 each year for the next 5 years. Expenses are expected
to include direct materials, direct labor, and factory overhead
(excluding depreciation) totaling $80,000 per year. The firm
uses
straight-line depreciation with no residual value for all
depreciable
assets. Pique's combined income tax rate is 40%. Management
requires a minimum after-tax rate of return of 10% on all
investments.
What is the present value payback period, rounded to one-tenth
of
a year? (Note: PV factors for 10% are as follows: year 1 =
0.909;
year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621;
the
PV annuity factor for 10%, 5 years = 3.791.)
Student Answer:
2.5 years.
3.0 years.
3.3 years.
3.6 years.