Michigan Mattress Company is considering the purchase of land and the

Michigan Mattress Company is considering the purchase of land and the construction of a new plant.

The land, which would be bought immediately (at t = 0 ), has a cost of $100,000 and the building, which would be erected at the end of the first year (t = 1 ), would cost $500,000. It is estimated that the firm’s after-tax cash flow will increase by $100,000 starting at the end of the second year, and that this incremental flow would increase at a 10 percent rate annually over the next 10 years. What is the approximate payback period?
A) 2 years
B) 4 years
C) 6 years
D) 8 years
E) 10 years

ANSWER

C