A is corrent. The requirement is to compute the discounted payback periods in years. The discounted payback is the number of periods it takes to recover the initial investment in discounted dollars. To compute the payback period, you first must compute the discounted future cash flows as shown below.
This answer is correct because the company gets back its initial investment of $43,000 in about 3 years ($37,990.50) plus 25% of the 4th year ($4,961.25 = $19,845 × .25). Note that the salvage value is ignored because it represents cash flow at the end of year 4.
C is incorrect because payback is achieved in 3.25 years.
C is incorrect because payback is achieved in 3.25 years.
E is incorrect because payback is achieved in 3.25 years.
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