Question

a company is planning to purchase a machine that will cost $47,652, have a six-year life, and will have no salvage value. the company expects to sell the machine's output of 3,000 units evenly throughout each year. a projected income statement for each year of the asset's life appears below. what is the payback period for this machine? sales $ 171,000 costs: manufacturing $ 102,600 depreciation on machine 4,000 selling and administrative expenses 57,000 (163,600) income $ 7,400

Answer 1

The payback period for the machine, costing $47,652 and producing an annual income of $7,400, is calculated to be 6.44 years.

Step-by-step explanation:

The payback period is the time it takes for an investment to generate an amount of money equal to the cost of the investment. In this case, we have a machine that costs $47,652 and is expected to have no salvage value by the end of its six-year life. The income generated by this machine is $7,400 annually, according to the provided projected income statement.

To calculate the payback period, we divide the initial investment by the annual cash inflow:

1. Determine the total cost of the machine: $47,652.
2. Calculate the annual net cash inflow. Here, it's the income which is $7,400.
3. Divide the total cost by the annual income to find the payback period: $47,652 / $7,400 = 6.44 years.

Therefore, the payback period for the machine is 6.44 years.