A company is considering purchasing a machine for $21,500. The machine will generate an after-tax...
Question:
A company is considering purchasing a machine for $21,500. The machine will generate an after-tax net income of $2,750 per year. The annual depreciation expense would be $2,250. What is the payback period for the new machine?
Payback Period:
The payback period is a capital budgeting technique that evaluates two or more investment alternatives by considering the annual cash inflows from the investment made. The number of years that a company takes in recovering its initial cash outlay from the cash flows generated by the investment is called the payback period and it doesn't consider the time value of money.
Answer and Explanation: 1
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The payback period for the new machine is 4.3 years.
Explanation:
As per the data:
- Investment cost of machine = $21,500
- Annual after-tax...
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