Joyous Corporation Is Considering an Investment in Equipment for $25,000

Multiple Choice

Joyous Corporation is considering an investment in equipment for $25,000. Data related to the investment are as follows: $$\begin{array}{l}\begin{array} { c c } &\text { Cash Flow before }\\\text { Year } & \text { Depreciation and Taxes } \\1 & \$ 12,500 \\2 & 12,500 \\3 & 12,500 \\4 & 12,500\end{array}\end{array}$$ Joyous uses the straight-line method of depreciation with no mid-year convention. In addition, its tax rate is 40 percent and the life of the equipment is four years with no salvage value. Cost of capital is 12 percent. What is the payback period in years approximated to two decimal points?

A) 2.00
B) 2.50
C) 3.33
D) 0.40