Question: Tau Inc. is considering modernizing its assembly plant. The plan calls for an initial investment of $3 million in new manufacturing equipment that qualifies for

Tau Inc. is considering modernizing its assembly plant. The plan calls for an initial investment of $3 million in new manufacturing equipment that qualifies for 100% full expensing in the year of acquisition. Use of the new equipment is expected to save $1.2 million per year in operating expenses over its four-year useful life. Tau's tax rate is 26% and the new equipment will have a zero salvage value at the end of its useful life. Cash flows are assumed to occur evenly over the year. Tau accepts projects that pay back within three years.

Determine the payback period for the investment in the new equipment and whether this investment should be accepted by Tau.

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