A company is planning to purchase a machine that will cost $45,000 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine? 6.00 years. 2.11 year. 5.59 years. 11.18 years. 2.89 years.

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Business

Donavan Torres

24 September, 19:39

A company is planning to purchase a machine that will cost $45,000 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine? 6.00 years. 2.11 year. 5.59 years. 11.18 years. 2.89 years.

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Figgy · Answer 1

2.89 years

Explanation:

The computation of the payback period is shown below:

As we know that

Payback period = Initial investment : Annual cash inflow

where,

The Initial investment is $45,000

And, the annual cash inflow is

= Net income + depreciation expense

= $8,050 + $7,500

= $15,550

So, the payback period is

= $45,000 : $15,550

= 2.89 years