https%3A%2F%2Fconn ation.com%2Fpaa HW Saved Help Save &B; Compute the payback pe
ID: 2393128 • Letter: H
Question
https%3A%2F%2Fconn ation.com%2Fpaa HW Saved Help Save &B; Compute the payback period for each of these two separate investments a. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of sik years. The system yields b. A machine costs $200,000, has a $14,000 salvage value, is expected to last eight years, and will generate an after-tax income of an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000 $41,000 per year after straight-ine depreciation. - Payback Period Ch 4 of 6Next>Explanation / Answer
a
Particulars
$
a
Cost of machine
260000
b
Incremental after tax income per year
75000
c
Annual depreciation
50000
d
Operating cash flow
125000
e
Expected Payback period (a/d)
2.08 years
b
Particulars
$
a
Cost of machine
200000
b
Incremental after tax income per year
41000
c
Annual depreciation
23250
d
Operating cash flow
64250
e
Expected Payback period (a/d)
3.11 years
Payback period
Choose numerator
/
choose denominator
=
Payback period
a
260000
/
125000
=
2.08 years
b
200000
/
64250
=
3.11 years
a
Particulars
$
a
Cost of machine
260000
b
Incremental after tax income per year
75000
c
Annual depreciation
50000
d
Operating cash flow
125000
e
Expected Payback period (a/d)
2.08 years
b
Particulars
$
a
Cost of machine
200000
b
Incremental after tax income per year
41000
c
Annual depreciation
23250
d
Operating cash flow
64250
e
Expected Payback period (a/d)
3.11 years
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