A new operating system for an existing machine is expected to cost $250,000 and
ID: 2486096 • Letter: A
Question
A new operating system for an existing machine is expected to cost $250,000 and have a useful life of four years. The system yields an incremental after-tax income of $72,115 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.
Compute the payback period for each of these two separate investments: a.A new operating system for an existing machine is expected to cost $250,000 and have a useful life of four years. The system yields an incremental after-tax income of $72,115 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.
b. A machine costs $210,000, has a $13,000 salvage value, is expected to last nine years, and will generate an after-tax income of $39,000 per year after straight-line depreciation. Payback Period Choose Numerator: / Choose Denominator: = Payback Period / = Payback period a. = b. =Explanation / Answer
a b Payback Period =250000/72115 Payback Period =210000/39000 3.47 5.38
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