A machine can be purchased for $110,000 and used for five years, yielding the fo

Question

A machine can be purchased for $110,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value. Year 1 Year 2 Year 3 Year 4 Year 5 Net income $ 7,400 $ 18,400 $ 43,000 $ 27,700 $ 73,600 Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)

  

Year Net Income Depreciation Net Cash Flow Cumulative Cash Flow 0 (110,000) $(110,000) 1 $7,400 2 18,400 3 43,000 4 27,700 0 5 73,600 0 Payback period =

Explanation / Answer

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)

Year Net Income Depreciation Net Cash Flow Cumulative Cash Flow 0 (110,000) $(110,000) 1 $7,400 22000 29400 80600 2 18,400 22000 40400 40200 3 43,000 22000 65000 (24800) 4 27,700 22000 49700 0 5 73,600 22000 95600 0 Payback period =3.618 years

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