Megan Inc Has a Policy of Not Accepting Any Investment Proposal

Essay

Megan Inc. has a policy of not accepting any investment proposal that requires more than three years to payback. The company is considering the purchase of new drafting equipment for $630,000. The equipment has an estimated useful life of seven years. Megan will use straight-line depreciation for this asset, with no salvage value. Megan's income tax rate, t, is approximately 25%.
Required:
Determine the required before-tax savings per year (rounded to nearest whole number) for the drafting equipment to meet the company's three-year payback requirement.