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

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 b. A machine costs $170,000, has a $14,000 salvage value, is expected to last eight years, and will $270,000 and have a useful life of four years. The system yields an incremental after-tax income of $77,884 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000 generate an after-tax income of $43,000 per year after straight-line depreciation Choose Denominator:Payback period Payback period 2700|years- Choose Numerator: Cost of investment . / Annual net cash flow | = | 270,000s 10.0001 = 10000|

Explanation / Answer

Calculate payback period :

Calculate annual cash flow :

A: (270000-10000)/4 = 65000+77884 = 142884

b (170000-14000)/8 = 19500+43000 = 62500

Choose numertor / choose denominator = Payback period Initital investment / Annual cash flow = Payback period a 270000 / 142884 = 1.89 years b 170000 / 62500 = 2.72 years

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