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.

Question

Business

Emerson Gutierrez

16 May, 19:12

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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Ricky Chase · 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