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

Question

Compute the payback period for each of these two separate investments a. A new operating system for an existing machine is expected to cost $290,000 and have a useful life of four years. The system yields an incremental after-tax income of $83,653 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,000 b. A machine costs $190,000, has a $15,000 salvage value, is expected to last eleven years, and will Payback Period Choose Numerator: Cost of investment Choose Denominator:Payback Period Annual net cash flow Payback period 4.16 years 14.19 years 290,000I 90,000 S 69,750 13,390 1

Explanation / Answer

Calculate payback period :

Choose numerator / Choose denominator = Payback period Cost of investment / Annual net cash flow = Payback period a. 290000 / 153403 = 1.89 years b. 190000 / 61909 = 3.07 years

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