Question

cost $24,000 with a six-year life and 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?

Answer 1

Answer:

4 years

Explanation:

The computation of the payback period is shown below:

Payback period is

= Cost of a Machine ÷ Annual cash flow

where,

Cost of a machine = $24,000

And, the annual cash flow is

= Net Income + Depreciation  expense

= $2,000 + $4,000

= $6,000

Now placing these values to the above formula

So, the payback period is

= $24,000 ÷ $6,000

= 4 years