Redrum Hotel Is Considering a Project with a 5-Year Life

Redrum Hotel is considering a project with a 5-year life and which would require a $325,000 investment in equipment with no salvage value. The project would provide income each year as follows for the life of the project: $\begin{array}{lr}\text { Sales }&&\$225,000\\\text { Variable costs } & \$ 80,000 \\\text { Fixed costs } & 95,000&175,000\\\text { Income before taxes }&&\$50,000\end{array}$ The income tax rate is 30%. Depreciation is included in the fixed costs amount. The company's required rate of return is 8%. Calculate the payback period for this project.

A) 3.25 years
B) 6.50 years
C) 2.83 years
D) 9.29 years