Question

ng 40\%; \$4.400 A company is considering the purchase of a new machine for $ 63,000 . Management predicts that the machine can produce sales of $ 17,500 each year for the next 10 years . Expenses are expected to include direct materials , direct labor , and factory overhead totaling 6,500 per year including depreciation of per year . Income tax expense is per year based on a tax rate of What the payback period for the new machine

Answer 1

Answer:

3 years and 8 months

Explanation:

The payback period is the length of time that it takes for the cashflow of a project to equal the initial investment of the project.

Initial investment = $ 63,000

Cash flow :

Sales                                                                        $ 17,500

Less Expenses                                                        ($6,500)

Add Depreciation ($ 63,000 ÷ 10)                           $6,300

Annual Cash flow                                                    $17,300

thus,

It takes 3 years and 8 months ($11,100/$17,300 x 12) for the cashflow of a project to equal the initial investment for the new machine.