Pearl Manufacturing is considering an investment in equipment costing $480,000. The equipment will be depreciated on a straight-line basis over a five-year period with an estimated residual value of $120,000. The expected net cash inflows from the investment are:
Year 1... $70,000
Year 2... $80,000
Year 3... $120,000
Year 4... $120,000
Year 5... $120,000
Total $510,000

Calculate the payback period for this investment.

This is homework and we will not do it for you. TIP What is the cost over 5 years? What is the profit over 5 years? Where does the profit start?