- A Vehicle Corporation is considering replacing atechnologically obsolete machine with a new state-of-the-artrobotic machine. They have compiled the following data for the newmachine:
Cost of new machineneeded $150,000
Annual net cashinflows $40,000
Salvage value of the machine in 10years .$20,000
Useful life of themachine 10years
Required rate ofreturn 10%
The company uses straight-line depreciation on allequipment.
a. What is the payback period for this machine? Ignorethe impact of income taxes.
b. How is the payback period used in evaluating potentialinvestments?
