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Managerial Accounting

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Calculating Payback Period with Taxes

MGRACT-KKEEPN

Costello Corporation plans to invest \$740,000 in new equipment. The equipment is expected to produce a net annual cash inflow of \$400,000 before income tax for five years. Depreciation of \$148,000 is to be taken each year. The income tax rate is 40%.

Calculate the payback period.

A

2.47 years

B

3.08 years

C

4.63 years

D

2.25 years