Davidson, Inc., is considering the purchase of production equipment that costs $300,000. The equipment is expected to generate an annual cash flow of $100,000 and have a useful life of five years with no salvage value. The firm's cost of capital is 14 percent. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. Payback for the project is

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The payback period is the time it takes for the investment to generate an amount of cash flow equal to the initial investment. Since the equipment generates $100,000 annually and costs $300,000, it will take 3 years ($300,000 / $100,000 per year) to pay back the initial investment.