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(Solution Download) A company is planning to purchase a machine that will cost $155,000, have a seven-year life, and be


 

 

 

 

 

 

 

 

 

 

A company is planning to purchase a machine that will cost

 

$155,000, have a seven-year life, and be depreciated using the

 

straight-line method with no salvage value. The company expects to

 

sell the machine's output of 4,000 units evenly throughout each

 

year. A projected income statement for each year of the asset's

 

life appears below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Sales

$212,000

 

  

 

  Costs:

 

  Manufacturing

$98,000

 

  Depreciation on machine

25,000

 

  Selling and administrative expenses

 

70,000

 

 

(193,000)

 

 

  Income before taxes

$ 19,000

 

  

 

  Income tax (50%)

( 9,500)
  Net

 

income

 

$ 9,500   

 

 

  

 

 

 

 

 

 

 

What is the

 

payback period for this machine?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.000 year
8.160 years
16.320 years
4.493 years
10.000 years

 

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