a.
Annual depreciation = (Cost price - Salvage value)/Useful life
= (240,000 - 9,000)/4
= $57,750
Annual cash flow = After tax income + Annual depreciation
= 69,230 + 57,750
= $126,980
b.
Annual depreciation = (Cost price - Salvage value)/Useful life
= (190,000 - 13,000)/8
= 177,000/8
= $22,125
Annual cash flow = After tax income + Annual depreciation
= 38,000 + 22,125
= $60,125
Choose numerator | / | Choose denominator | = | Payback period | |
Cost of investment | / | Annual cash flow | = | Payback period | |
a. | 240,000 | / | 126,980 | = | 1.89 year |
b. | 190,000 | / | 60,125 | = | 3.16 year |
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