Question

A machine can be purchased for $300,000 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				Year 2				Year 3				Year 4				Year 5
Net income		$	21,500			$	29,000			$	60,000			$	39,500			$	132,000

Compute the machine’s payback period (ignore taxes). (Round payback period answer to 3 decimal places.)

	Computation of Annual Depreciation Expense Year Beginning Book Value Annual Depr. (40% of Book Value) Accumulated Depreciation at Year-End Ending Book Value 1 2 3 4 5 Annual Cash Flows Year Net income Depreciation Net Cash Flow Cumulative Cash Flow 0 $(300,000) $(300,000) 1 21,500 2 29,000 3 60,000 4 39,500 5 132,000 Payback period = years

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Answer 1