Clinton Inc. is considering the purchase of a new equipment costing $200,000. The equipment is expected to reduce annual operating costs by $70,000 and will be depreciated using the straight-line method (with no half-year convention) over five years with no salvage value at the end of its useful life. Assuming a 40 percent income tax rate, the equipment's payback period is:

Question

Quizplus · Accepted Answer

The Answer of Clinton Inc. is considering the purchase of a new equipment costing $200,000. The equipment is expected to reduce annual operating costs by $70,000 and will be depreciated using the straight-line method (with no half-year convention) over five years with no salvage value at the end of its useful life. Assuming a 40 percent income tax rate, the equipment's payback period is: