Assume that you are thinking about starting your own small business. You have made the following estimates regarding this opportunity: You can rent a location for your business at a cost of $36,000 per year. The equipment costs incurred to start the business would total $250,000. The equipment would have a 5-year useful life and a salvage value of $25,000. Your company’s estimated sales per year would equal $350,000 and its variable cost of goods sold would be 30% of sales. Other operating costs would include $72,000 per year in salaries, $4,000 per year for insurance, $25,000 per year for utilities, and a 3% sales commission. The payback period for this investment opportunity is closest to:
a. 4.06 years
b. 2.18 years
c. 3.78 years
d. 3.06 years