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Question(s) / Instruction(s):

The management of Douglass Corporation is considering the purchase of a new machine costing $750,000. The company’s desired rate of return is 6%. The present value factor for an annuity of $1 at interest of 6% for 5 years is 4.212. In addition to the information, use the following data in determining the acceptability in this situation:

Year       Income from Net Cash Year Operations Flow

1              $37,700                                 $187,500

2              37,700                                   187,500

3              37,700                                   187,500

4              37,700                                   187,500

5              37,700                                   187,500

The cash payback period for this investment is

A.            4 years.

B.            5 years.

C.            20 years.

D.            3 years.

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