Exercise 24-4 Payback period; accelerated depreciation LO P1 A machine can be purchased for $233,000...
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Exercise 24-4 Payback period; accelerated depreciation LO P1
A machine can be purchased for $233,000 and used for five years, yielding the following net incomes. In projecting net incomes, double-declining depreciation is applied, using a five-year life and a zero salvage value.
Year 1
Year 2
Year 3
Year 4
Year 5
Net income
$
19,500
$
44,000
$
51,000
$
52,500
$
121,000
Compute the machines payback period (ignore taxes). (Round payback period answer to 3 decimal places.)
Computation of Annual Depreciation Expense
Year
Beginning Book Value
Annual Depr. (40% of Book Value)
Accumulated Depreciation at Year-End
Ending Book Value
1
2
3
4
5
Annual Cash Flows
Year
Net income
Depreciation
Net Cash Flow
Cumulative Cash Flow
0
$(233,000)
$(233,000)
1
19,500
2
44,000
3
51,000
4
52,500
5
121,000
Payback period =
years
Answer & Explanation
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