Question

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Perform the two simplest payback calculations. Tell me what method you are using.Perform the calculations. Show your work.

Use this data.        Depreciation on equipment =$30,300

                                          Savings = 41% of project cost

                                          Project cost = $275,000          

                        Tax rate = 29%

Answer 1

м Choose Numerator / Choose denominator = Pay back Period Cost of Investment / Annual netcCash flows = Pay back Period 275000 / $ 88,839.50 = 3.1 Years Less: | Calculating Net Cash flow Project Cost $ 2,75,000.00 Savings $1,12,750.00 Depreciation $ 30,300.00 Net Income $ 82,450.00 Tax $ 23,910.50 Net Income post tax $ 58,539.50 Depreciation $ 30,300.00 Net Cash flows $ 88,839.50 Less: Add: Explanation-Depreciation is only used to calculate tax amount to be paid in cash. But since depreciation is a non-cash expense, it is added back to net Income.