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liraira [26]
3 years ago
8

Project A requires a $ 385,000 initial investment for new machinery with a five year life and a salvage value of . The company u

ses straight - line depreciation . Project A is expected to yield annual net income of $ 23,100 per year for the next five years.
Required:
Compute Project A's payback period.
Business
1 answer:
Papessa [141]3 years ago
6 0

Answer:

4.2 years

Explanation:

Here is the complete question

Project A requires a $ 385,000 initial investment for new machinery with a five year life and a salvage value of $44,000. The company uses straight - line depreciation . Project A is expected to yield annual net income of $ 23,100 per year for the next five years.

Required:

Compute Project A's payback period.

Payback = amount invested / cash flow

cash flow = net income + depreciation

depreciation = (cost of asset - salvage value) / useful life

(385,000 - 44,000) / 5 = 68,200

Cash flow = 68,200 + $ 23,100 = 91300

$ 385,000 / 91300 =4.2

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