Landmark Prints is considering an investment in new equipment costing $520,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $128,000 the first year,$160,000 the second year,and $154,000 every year thereafter until the fifth year.What is the payback period for this investment? The residual value is zero.(Round your answer to two decimal places.)

Question

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The payback period is calculated by adding the annual net cash inflows until the initial investment is recovered. The cash inflows are $128,000 in the first year, $160,000 in the second year, and $154,000 for the third to fifth years. The cumulative cash inflows are $128,000 after year 1, $288,000 after year 2, $442,000 after year 3, and $596,000 after year 4. The initial investment of $520,000 is recovered between the third and fourth years. To find the exact payback period: after 3 years, $442,000 is recovered, leaving $78,000 to be recovered in the fourth year. $78,000/$154,000 = 0.51 years. Therefore, the payback period is 3 years + 0.51 years = 3.51 years.

Landmark Prints Is Considering an Investment in New Equipment Costing