Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine?

Question

Business

Sophia Lucas

9 September, 14:22

Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine?

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Answers (1)

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Nikolas Rice · Answer 1

The payback period for the new machine is 6 years.

Explanation:

depreciation = $1,500,000/10

= $150,000

payback period = ($100,000 + $150,000) / $1,500,000

= 6 years

Therefore, The payback period for the new machine is 6 years.