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Compute the payback period for the piece of equipment

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Question - Noway Jose Communications, Inc., is considering the purchase of a new piece of computerized data transmission equipment. Estimated annual net cash inflows for the new equipment are $590,000. The equipment costs $2 million, it has a five-year life, and it will have no residual value at the end of the five years. The company has a minimum rate of return of 12 percent.

Compute the payback period for the piece of equipment. Round your answer to one decimal place.

Does this method yield a positive or a negative response to the proposal to buy the equipment, assuming that the company sets a maximum payback period of four years?

Reference no: EM132076811

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