Question

Omaha Plating Corporation is considering purchasing a machine for $1,500,000. The machine is expected to generate a constant after-tax income of $100,000 per year for 15 years. The firm will use straight-line (SL) depreciation for the new machine over 10 years with no residual value. What is the payback period for the new machine?

Answer 1

The payback period for the new machine is 6 years.

Step-by-step explanation:

depreciation = $1,500,000/10

= $150,000

payback period = ($100,000 + $150,000)/$1,500,000

= 6 years

Therefore, The payback period for the new machine is 6 years.