A company Is planning to purchase a machine that will cost $36,000 wlth a stx-ye

Question

A company Is planning to purchase a machine that will cost $36,000 wlth a stx-year lfe and no salvage value. The company expects to sell the machine's output of 3,000 unlts evenly throughout each year. A projected Income statement for each year of the asset's life appears below. What is the payback perlod for this machine? sales Costs: Manufacturing Depreciation on machine selling and administrative expenses Income before taxes Income tax (40%) Net income s 1e8,08e $58,000 6,98e 36,000 (1ee,e0e) $ 8,80e (3,280) $4,8e6

Explanation / Answer

Annual Cash Inflows: Net Income after tax 4,800 Add: Depreciation expense 6,000 Annual cash inflows   10,800 Initial Investment on Machine 36,000 Payback Period = Initial Investment / Annual Cash inflows    ( 36,000 /10,800 ) = 3.33 years or 3 years 4 months

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