A company is planning to purchase a machine that will cost $24,600, have a six-y

Question

A company is planning to purchase a machine that will cost $24,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

a)6.53 years.

B)3.13 years.
C)13.05 years.
D) 1.87 year.
E)6.00 years.

A company is planning to purchase a machine that will cost $24,600, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

Explanation / Answer

Operating Cash Flow= Net income + Depreciation

                                    =$3,770+$4,100

                                     =$7,870

Payback period = Initial investment/ annual cash flows

                              =$24,600/$7,870

                               =3.13 years

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