Compute the payback period for each of these two separate investments: a. A new

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Compute the payback period for each of these two separate investments: a. A new operating system for an existing machine is expected to cost $300,000 and have a useful life of five years. The system yields an incremental after-tax income of $86,538 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $12,000 b. A machine costs $210,000, has a $16,000 salvage value, is expected to last eleven years, and will generate an after-tax income of $47,000 per year after straight-line depreciation. Choose Numerator: I Choose Denominator:Payback period Payback period id D.

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a. Payback period = Initial Investment / Annual Cash inflows Initial Investment 300,000 Annual cash inflows After tax income 86,538 Add: Depreciation - ( $ 300,000 - 12,000 ) / 5                                      57,600 Annual cash inflows                                    144,138 Payback period = $ 300,000 / $ 144,138                                           2.08 b. Payback period = Initial Investment / Annual Cash inflows Initial Investment 210,000 Annual cash inflows After tax income 47,000 Add: Depreciation - ( $ 210,000 - 16,000 ) / 5 38,800 Annual cash inflows 85,800 Payback period = $ 300,000 / $ 144,138 2.45

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