Question: Territories Cable Inc is considering the purchase of new data
Territories Cable, Inc., is considering the purchase of new data transmission equipment. Estimated annual cash revenues for the new equipment are $1 million, and operating costs (including depreciation of $400,000) are $825,000. The equipment costs $2 million, it has a five-year life, and it will have no residual value at the end of the five years. Compute the payback period for the piece of equipment. (Round to one decimal place.) Does this method yield a positive or a negative response to the proposal to buy the equipment if the company has set a maximum payback period of four years? Explain your answer.
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