Exercise 25-5 Payback period computation; even cash flows LO P1 Compute the payback period for...
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Exercise 25-5 Payback period computation; even cash flows LO P1 Compute the payback period for each of these two separate investments: a. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of six years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. b. A machine costs $210,000, has a $14,000 salvage value, is expected to last eleven years, and will generate an after-tax income of $41,000 per year after straight-line depreciation. Payback Period Choose Numerator: 7 Choose Denominator: = Cost of investment / Annual net cash flow a $ 260,000 b. $ 210,000 1 Payback Period Payback period 0
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