Reference: 10-05
the Sawyer Company Has $80,000 to Invest and Is

Reference: 10-05
The Sawyer Company has $80,000 to invest and is considering two different projects, X and Y. The following data are available on the projects: $$\begin{array} { | l | l | l | } \hline & \text { Project } X & \text { Project } Y \\\hline \text { Cost of equipment needed now } & \$ 80,000 & - \\\hline \text { Working capital requirement } & - & \$ 80,000 \\\hline \text { Annual cash operating inflows } & \$ 23,000 & \$ 18,000 \\\hline \text { Salvage value in 5 years } & \$ 6,000 & - \\\hline\end{array}$$ Both projects will have a useful life of 5 years; at the end of 5 years, the working capital will be released for use elsewhere. Sawyer's discount rate is 12%.
-The Keego Company is planning a $200,000 equipment investment that has an estimated five-year life with no estimated salvage value. The company has projected the following annual cash flows for the investment. $$\begin{array} { | l | l | } \hline \text { Year } & \text { Cash Inflows } \\\hline 1 & \$ 120,000 \\\hline 2 & 60,000 \\\hline 3 & 40,000 \\\hline 4 & 40,000 \\\hline 5 & 40,000 \\\hline \text { Total } & \$ 300,000 \\\hline\end{array}$$ Assuming that the cash inflows occur evenly over each year, the payback period for the investment is:

A) 4.91 years.
B) 2.50 years.
C) 0.75 years.
D) 1.67 years.