MC Qu. 89 A company is planning... A company is planning to purchase a machine t

Question

MC Qu. 89 A company is planning... A company is planning to purchase a machine that will cost $51,000 with a six-year life and no salvage value. The company the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of below. What is the payback period for this machine? expects to sell the asset's life appears Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income before taxes Income tax (35%) Net income 7 s 129,000 $65,000 8,500 43,000 (116,500) $ 12,500 (4,375) $ 8,125 Multiple Choice Prev 22 of 40111 Next>

Explanation / Answer

Here, initial investment is $51,000, and annual cash inflow is $16,625 (Net income of $8,125 + Depreciation expense of $8,500.

Payback period = Initial investment / Annual cash inflow

= $51,000 / $16,625

= 3.07 years.

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