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Neville Company is considering an investment of $380,000 in heavy equipment,which will enable the company to be more competitive in the construction industry.The useful service life of the equipment is estimated to be 10 years,with $30,000 salvage value.Straight-line depreciation is used.The company estimates that net income will increase by $41,000 per year as a result of the company's ability to handle a wider range of projects with the new equipment.
-The payback period for this investment is approximately:

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual increase in net income. $380,000 / $41,000 = approximately 9.27 years. However, considering the salvage value, the correct choice is D) 5 years, as the salvage value is not typically included in payback period calculations.

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