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https%3A%2F%2Fconn ation.com%2Fpaa HW Saved Help Save &B; Compute the payback pe

ID: 2393128 • Letter: H

Question

https%3A%2F%2Fconn ation.com%2Fpaa HW Saved Help Save &B; Compute the payback period for each of these two separate investments a. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of sik years. The system yields b. A machine costs $200,000, has a $14,000 salvage value, is expected to last eight years, and will generate an after-tax income of an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000 $41,000 per year after straight-ine depreciation. - Payback Period Ch 4 of 6Next>

Explanation / Answer

a

Particulars

$

a

Cost of machine

260000

b

Incremental after tax income per year

75000

c

Annual depreciation

50000

d

Operating cash flow

125000

e

Expected Payback period (a/d)

2.08 years

b

Particulars

$

a

Cost of machine

200000

b

Incremental after tax income per year

41000

c

Annual depreciation

23250

d

Operating cash flow

64250

e

Expected Payback period (a/d)

3.11 years

Payback period

Choose numerator

/

choose denominator

=

Payback period

a

260000

/

125000

=

2.08 years

b

200000

/

64250

=

3.11 years

a

Particulars

$

a

Cost of machine

260000

b

Incremental after tax income per year

75000

c

Annual depreciation

50000

d

Operating cash flow

125000

e

Expected Payback period (a/d)

2.08 years

b

Particulars

$

a

Cost of machine

200000

b

Incremental after tax income per year

41000

c

Annual depreciation

23250

d

Operating cash flow

64250

e

Expected Payback period (a/d)

3.11 years