Question

A machine can be purchased for $297.000 and used for five years, yielding the following net incomes. In projecting net incomes, double-declining depreciation is applied using a five-year life and a zero salvage value. Year 1 $15.500 Year 2 $42.000 Year 3 $50.000 Year 4 $41.500 Year 5 $110.000 Net income Compute the machine's payback period (ignore taxes). (Round payback period answer to 3 decimal places.) Answer is complete but not entirely correct. Ending Year Book Value Computation of Annual Depreciation Expense Annual Depr. Accumulated Beginning (40% of Book Depreciation at Book Value Value) Year-End 297,000 118,800 118 800 178,200 71,280 190,080 106,920 42.768 232.848 64,152 25,661 258,509 38,491 (15,396) N- 178,249 106,920 64,152 38.491

Answer 1

Answer with working notes is given below

Year Value Annual Beginning Depreciation Accumulated Ending Book book value (40% of Book Depreciation value) $297,000 $118,800 $118,800 $178,200 $178,200 $71,280 $190,080 $106,920 $106,920 $42,768 $232,848 $64,152 $64,152 $25,661 $258,509 $38,491 $38,491) $38,491) $297,000 $0 Note: In year 5 entire book value will be depreciation since no residual value for the machine Year o H Net Depreciation Income -$297,000 $15,500 $118,800 $42,000 $71,280 $58,000 $42,768 $41,500 $25,661 $110,000 $38,491 Net Cash Cumulative inflow Cash inflow -$297,000 $134,300 -$162,700 $113,280 $49,420 $100,768 $51,348 $67,161 $118,509 $148,491 $267,000 1 m + 1) payback period 2.490 years working note: year 3 cash flow to be recovered Total cash inflow in year 3 recovery time Total payback period $49,420 $100,768 0.490 2.490 years (2+0.49)