Antonio, Inc., has invested in new production equipment at a cost of $24,000. The equipment has an estimated useful life of eight years. The estimated annual sales and operating expense related to the equipment are as follows:
|
Annual sales |
$44,000 |
|
Labor costs. |
(36,000) |
|
Depreciation of equipment |
(3,000) |
|
Operating income |
$ 5,000 |
|
Income taxes (40%). |
(2,000) |
|
Net income |
$ 3,000 |
The payback period of the investment in equipment is approximately
a. 3.0 years.
b. 4.0 years.
c. 4.8 years.
d. 8.0 years.