Davidson, Inc

Multiple Choice

Davidson, 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

A) 3.00 years.
B) 3.50 years.
C) 5.00 years.
D) 2.38 years.