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Firefox File Edit View History Bookmarks Tools Window Help ???97% L%), Sat 6:44 PM Atika Ishtiaq a E Oracle PeopleSoft Sign-in hcc canvas-Google SearchX Chegg Study | Guided Solution x+ .. Search Ch 11 Ex 11-5 G Help Save & Exit Submit Saved Pictures Check my work Exercise 11-5 Payback period computation; even cash flows LO P1 econ2301.pptx Compute the payback period for each of these two separate investments: points a. A new operating system for an existing machine is expected to cost $290,000 and have a useful life of five years. The system yields an incremental after-tax income of $83,653 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,000. Hint b. A machine costs $180,000, has a $15,000 salvage value, is expected to last eleven years, and will generate an after-tax income of Ask $46,000 per year after straight-line depreciation. Print Payback Period Choose Denominator:Pa Choose Numerator Period Payback period Prev 1 of 1 Next Hill 988

Explanation / Answer

Payback Period Cost of Investment / Annual Net Cash Flow = Payback Period a. $            2,90,000 / $         1,39,453 = 2.08 b. $            1,80,000 / $             61,000 = 2.95 a. b. Cost of machine = $         2,90,000 $ 1,80,000 Annual Net Cash Flow = Incremental after tax income per year + Annual Depreciation Incremental after tax income per year = $             83,653 $      46,000 Annual Depreciation = $             55,800 $      15,000 ($2,90,000-$11,000)/5years ($1,80,000-$15,000)/11years Annual Net Cash Flow = $         1,39,453 $      61,000

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