Diamond Co. is considering investing in new equipment that will cost $900,000 with a 10year useful life.

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Question:

Diamond Co. is considering investing in new equipment that will cost $900,000 with a 10–year useful life. The new equipment is expected to produce annual net income of $30,000 over its useful life. Depreciation expense, using the straight-line rate, is $90,000 per year.

Compute the cash payback period. Show your work.