Reference: 24_01
a Company Is Planning to Purchase a Machine

Reference: 24_01
A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated using the straight-line method with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below.
$\begin{array}{llr}\text{Sales} & & \$ 90,000 \\\text{Costs:} & & \\\text{Manufacturing} & \$ 52,000 \\ \text{Depreciation on machine} & 4,000 \\ \text{Selling and administrative expenses} & 30,000 & \underline{(86,000) }\\\text{Income before taxes} & & \$ 4,000 \\\text{Income tax \(50 \%\) } & & \underline{(2,000) }\\\text{Net income} & & \bold{\underline{\$ 2,000}}\end{array}$
-What is the payback period for this machine?

A) 24 years
B) 12 years
C) 6 years
D) 4 years
E) 1 year