A machine can be purchased for $251,000 and used for five years, yielding the following net incomes. In projecting net

Question

A machine can be purchased for $251,000 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. Net income Year 1 Year 2 Year 3 Year 4 Year 5 J $13,500 $36,000 $65,000 $59,000 $128,000 Compute the machine's payback period (ignore taxes). (Round payback period answer to 3 decimal places.) Year Beginning Book Value Computation of Annual Depreciation Expense Annual Depr. (40% of Book Value) Accumulated Ending Book Depreciation at Year-End Value 1 2 3 4 5 Year Net income Annual Cash Flows Depreciation Net Cash Flow Cumulative Cash Flow 0 $ (251,000) 1 13,500 2 36,000 3 65,000 $ (251,000) 4 59,000 5 128,000 Payback period = years

Help In Homework · Accepted Answer

Computation of Annual Depreciation Expenses: Year Beginning Book Annual Depreciation Accumulated Depreciation Ending Book Value Value at 40% 1 $251,000 $100,400 $100,400 $150,600 2 $150,600 $60,240 $160,640 $90,360 3 $90,360 $36,144 $196,784 $54,216 4 $54,216 $27,108 $223,892 $27,108 5 $27,108 $27,108 $251,000 $0 Computation of Payback Period: Year Net income Depreciation Net cash flow Cumulative cash flow 0 -251000 -251000 1 $13,500 $100,400 $113,900 ($137,100) 2 $36,000 $60,240 $96,240 ($40,860) 3 $65,000 $36,144 $101,144 $60,284 4 5 Payback Period = 2+($40,860/$101,144)= 2.40 Years

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A machine can be purchased for $251,000 and used for five years, yielding the following net incomes

Expert Solution

Archived Solution

Computation of Annual Depreciation Expenses:
Year	Beginning Book	Annual Depreciation	Accumulated Depreciation	Ending Book Value
	Value	at 40%
1	$251,000	$100,400	$100,400	$150,600
2	$150,600	$60,240	$160,640	$90,360
3	$90,360	$36,144	$196,784	$54,216
4	$54,216	$27,108	$223,892	$27,108
5	$27,108	$27,108	$251,000	$0

Computation of Payback Period:
Year	Net income	Depreciation	Net cash flow	Cumulative cash flow
0			-251000	-251000
1	$13,500	$100,400	$113,900	($137,100)
2	$36,000	$60,240	$96,240	($40,860)
3	$65,000	$36,144	$101,144	$60,284
4
5

Payback Period = 2+($40,860/$101,144)=			2.40	Years