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Vlad1618 [11]
2 years ago
10

A company is considering the purchase of a new machine for $55,000. Management predicts that the machine can produce sales of $1

6,700 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,300 per year including depreciation of $4,700 per year. Income tax expense is $3,760 per year based on a tax rate of 40%. What is the payback period for the new machine
Business
1 answer:
Ymorist [56]2 years ago
6 0

Answer:

5.32 years

Explanation:

Particulars                 Amount

Sales                           $16,700  

Less: Expenses          <u>$7,300</u>

Profit before tax         $9,400  

Less: income tax        <u>$3,760</u>

Net income                 $5,640

Add: Depreciation      <u>$4,700</u>

Annual Cash flow      <u>$10,340</u>

So, the payback period for the new machine = Total investment/Annual cash flow = $55,000 / $10,340 = 5.319148936170213 = 5.32 years

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