Dunkin, 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

Question

Quizplus · Accepted Answer

To calculate the payback period, we divide the initial investment by the annual net cash flow. 
Initial investment = $300,000
Annual net cash flow = $100,000
Payback period = $300,000 ÷ $100,000 = 3 years
Therefore, the best answer is C because the payback period is 3 years, which is the shortest time among all other options.