Silver Company has the opportunity to introduce a new product. Silver expects the product to sell for P60 and to have per unit variable costs of P35 and annual cash fixed costs of P4,000,000. Expected...

Silver Company has the opportunity to introduce a new product. Silver expects the product to sell for P60 and to have per unit variable costs of P35 and annual cash fixed costs of P4,000,000. Expected annual sales volume is 275,000 units. The equipment needed to bring out the new product costs P6,000,000, has a four-year life and no salvage value, and would be depreciated on a straight-line basis. Silver's cost of capital is 14% and its income tax rate is 40%.

The present values of 1 at 14 percent for 4 periods are: End of: Yr. 1 0.877; Yr. 2-0.770; Yr. 3-0.675; Yr. 4 - 0.520. The present of annuity of 1 at 14 percent for 4 periods is 2.914.

What is the payback period?

Choices:

2.93 years

3.48 years

2.09 years

2.58 years