Question

A machine can be purchased for $160,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied using a five-year life and a zero salvage value. Year 1 Year 2 Year Year 4 Year 5 Net income $10,700 $26,700 $57,00 $40,100 $ 106,800 Compute the machine's payback period (Ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.) Year Net Income Depreciation Net Cash Flow Cumulative Cash Flow $ (160,000) (180,000) 0 $ 1 2 3 4 10,700 20.700 57,000 40,100 108,800 6 Payback period

Answer 1

Answer
Calculation of payback period:
Year	Net Income	Depreciation	Net Cash flow	Cumulative Cash flow
0			$1,60,000	$   -1,60,000
1	$     10,700	$        32,000	$   42,700	$   -1,17,300
2	$     26,700	$        32,000	$   58,700	$      -58,600
3	$     57,000	$        32,000	$   89,000	$       30,400
4	$     40,100	$        32,000	$   72,100	$    1,02,500
5	$ 1,06,800	$        32,000	$1,38,800	$    2,41,300
Payback period	= 2+(58600/89000)
	= 2.658 Years
Note 1: Calculation of straight line depreciation
	= (Cost - Salvage Value)/Useful life
	= (160000-0)/5
	= $ 32000