Question

A machine can be purchased for $274,000 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. $23,500 $35,000 $74,000 $47.500 132,000 Compute the machine's payback period (Ignore taxes). (Round payback period answer to 3 decimal places.) Ending Beginning Book Vale Annual Cash Flows Year Net income Depreciation Cumulative Cash Flow O S $ 274,000) (274,000) 23.500 35,000 74,000 47,500 32 000 74,000 47.500 74.000 121.500 253,500 132.000 Payback period

Answer 1

Year Computation of Annual Depreciation Expense Accumulated Beginning Book Annual Depreciation Depreciation at the Value (40% of Book Value) Year-end Ending Book Value $ 2,74,000.00 $ 1,09,600.00 * 1,09,600.00 $ 1,64,400.00 $ 1,64,400.00 $ 65,760.00 * 1,75,360.00 $ -10,960.00 $ -10,960.00 $ 39,456.00 * 2,14,816.00 $ -2,25,776.00 $ -2,25,776.00 $ 29,592.00 * 2,44,408.00 $ 4,70,184.00 $ -4,70,184.00 $ 29,592.00 *2,74,000.00 $ -7,44,184.00 2 3 4 5 Year 0 1 2 3 4 5 $ $ $ $ $ $ Net Income -2,74,000.00 $ 22,500.00 $ 25,000.00 $ 74,000.00 $ 47,500.00 $ 1,32,000.00 $ ANNUAL CASH FLOWS Cumulaive Cash Depreciation Net Cash Flow Flow - $ -2,74,000.00 $ -2,74,000.00 1,09,600.00 $ 1,32,100.00 $ -1,41,900.00 65,760.00 $ 90,760.00 $ -51,140.00 39,456.00 $ 1,13,456.00 $ 62,316.00 29,592.00 $ 77,092.00 $ 1,39,408.00 29,592.00 $ 1,61,592.00 | $ 3,01,000.00 Pay-back Period = 2.4507 years

Notes:

Be careful while reading numbers (with commas)