For analysis purposes Jay considers his restaurant to have three revenue centers. These are the dining room, the bar and off-sit
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Answer:
a. 2.21 years
b. 3.62 years
Explanation:
The payback period measures how long it takes for the amount invested in a project to be recovered from the cummulative cash flows.
To find the payback period of the machine, first we need to calculate the depreciation expense.
Straight line depreciation = ( Cost of asset - Salvage value) / useful life
Investment a's depreciation expense = ($520,000 - $10,000) / 6 = $85,000
Because depreciation is a non cash expense, it would be added back to cash flow = $85,00 + $150,000 = $235,000
Deprecation expense for investment b = ($380,000-$20,000) / 8 = $45,000
Because depreciation is a non cash expense, it would be added back to cash flow = $45,000 + $60,000 = $105,000
Explanations on how the payback periods were calculated can be found in the attached images.
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