A company is planning to purchase a machine that will cost $24,000 with a six-year life and 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. What is the payback period for this machine?

Question

Quizplus · Accepted Answer

Depreciation on machine = $24,000/6 = $4,000
Annual cash flows = $2,000 + $4,000 = $6,000; Payback period = $24,000/$6,000 = 4 years

A Company Is Planning to Purchase a Machine That Will