# A new operating system for an existing machine is expected to cost $300,000 and have a useful...

## Question:

A new operating system for an existing machine is expected to cost $300,000 and have a useful life of six years. The system yields an incremental after-tax income of $86,538 each year after deducting its straight-line depreciation.

The predicted salvage value of the system is $12,000.

Compute the payback period.

## Payback Period:

The payback period is one of the several methods used for assessing a given project or investment. It indicates the time period over which the initial investment gets recovered by means of expected annual cash flows. While determining the payback period, the time value of money is usually ignored.

## Answer and Explanation: 1

Become a Study.com member to unlock this answer! Create your account

View this answerThe calculated value of the payback period is 2.23 years.

The annual depreciation expense under the straight line method is given by:

- = (Cost of the...

See full answer below.

#### Ask a question

Our experts can answer your tough homework and study questions.

Ask a question Ask a question#### Search Answers

#### Learn more about this topic:

from

Chapter 5 / Lesson 24Learn the meaning and purpose of the payback period method. Learn how to calculate the payback period, and understand the advantages and limitations of using this method.

#### Related to this Question

- A new operating system for an existing machine is expected to cost $270,000 and have a useful life of five years. The system yields an incremental after-tax income of $77,884 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $750,000 and have a useful life of six years. The system yields an incremental after-tax income of $160,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $520,000 and have a useful life of six years. The system yields an incremental after-tax income of $150,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $780,000 and have a useful life of six years. The system yields an incremental after-tax income of $225,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $770,000 and have a useful life of six years. The system yields an incremental after-tax income of $295,000 each year after deducting its straight-line depreciation. The predicted salvage
- A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage
- Investment #1: A new operating system for an existing machine is expected to cost $640,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year
- A new operating system for an existing machine is expected to cost $550,000 and have a useful life of six years. The system yields an incremental after-tax inco
- A new operating system for an existing machine is expected to cost $760,000 and have a useful life of six years. The system yields an incremental after-tax inc
- A new manufacturing machine is expected to cost $278,000, have an eight-year life, and a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting
- A new manufacturing machine is expected to cost $278,000, have an eight year life and a $30k salvage value. The machine will yield an annual incremental after-tax income of $35k after deducting the straight line depreciation. Compute the payback period
- A new manufacturing machine is expected to cost $278,000, have an 8-year life, and have a $30,000 salvage value. The machine will yield an annual incremental after-tax income of $35,000 after deducting the straight-line depreciation. Compute the accountin
- A machine costs $505,000 and is expected to yield an after-tax net income of $20,000 each year. Management predicts this machine has a 10-year service life and a $105,000 salvage value, and it uses straight-line depreciation. Compute this machine's accoun
- A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 10-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accoun
- A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine's accoun
- A machine costs $500,000 and is expected to yield an after-tax net income of $15,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine s accoun
- A machine costs $200,000 and is expected to yield an after-tax net income of $5,000 each year. Management predicts this machine has an 8-year service life and a $40,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounti
- A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has an 11-year service life and a $60,000 salvage value, and it uses straight-line depreciation. Compute this machine's accoun
- A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has an 8-year service life and a $60,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounti
- A machine costs $500,000 and is expected to yield an after-tax net income of $19,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses straight-line depreciation. Compute this machine's accou
- A machine costs $200,000 and is expected to yield an after-tax net income of $5,040 each year. Management predicts this machine has a 12-year service life and a $40,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounti
- A machine costs $190,000, has a $10,000 salvage value, is expected to last nine years, and will generate an after-tax income of $30,000 per year after straight-line depreciation. Compute the payback period.
- A machine costs $210,000, has a $14,000 salvage value, is expected to last ten years, and will generate an after-tax income of $43,000 per year after straight-line depreciation. Compute the payback period.
- A machine costs $400,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 8-year service life and a $80,000 salvage value, and it uses strai
- A machine costs $300,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 9-year service life and a $60,000 salvage value, and it uses strai
- A machine costs $700,000 and is expected to yield an after-tax net income of $30,000 each year. Management predicts this machine has an 11-year service life and a $140,000 salvage value, and it uses s
- A machine costs $400,000 and is expected to yield an after-tax net income of $9,000 each year. Management predicts this machine has a 9-year service life and a $80,000 salvage value, and it uses strai
- A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. Management predicts this machine has a 10-year service life and a $100,000 salvage value, and it uses st
- A company can buy a machine that is expected to have a three-year life and a $29,000 salvage value. The machine will cost $1,796,000 and is expected to produce a $199,000 after-tax net income to be received at the end of each year. If a table of present v
- A company can buy a machine that is expected to have a three-year life and a $21,000 salvage value. The machine will cost $1,764,000 and is expected to produce a $191,000 after-tax net income to be received at the end of each year. If a table of present v
- A company can buy a machine that is expected to have a three-year life and a $31,000 salvage value. The machine will cost $1,804,000 and is expected to produce a $201,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $23,000 salvage value. The machine will cost $1,772,000 and is expected to produce a $193,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $25,000 salvage value. The machine will cost $1,780,000 and is expected to produce a $195,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and a $36,000 salvage value. The machine will cost $1,824,000 and is expected to produce a $206,000 after-tax net income to be re
- A company can buy a machine that is expected to have a three-year life and $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be rece
- A company can buy a machine that is expected to have a three-year life and a $33,000 salvage value. The machine will cost $1,812,000 and is expected to produce a $203,000 after-tax net income to be re
- A machine that cost $40,000 and had accumulated depreciation of $30,000 was traded in on a new machine, which had an estimated 20-year life and a cash price of $50,000. If a $7,000 trade-in allowance was received on the old machine, the new machine should
- A machine costs $180,000, has a $12,000 salvage value, is expected to last eight years, and will generate an after-tax income of $39,000 per year after straight-line depreciation. Compute the payback period.
- A machine costs $210,000, has a $16,000 salvage value, is expected to last nine years, and will generate an after-tax income of $47,000 per year after straight-line depreciation. Compute the payback period.
- A machine costs $550,000 and is expected to yield an after-tax net income of $20,000 each year. Management predicts this machine has a 10-year service life and a $150,000 salvage value, and it uses straight-line depreciation. Compute this machine s accou
- A machine costs $700,000 and is expected to yield an after-tax net income of $30,000 each year. Management predicts this machine has a 12-year service life and a $140,000 salvage value, and it uses straight-line depreciation. Compute this machine's accou
- If machine A cost $13,000, had accumulated depreciation of $4,000 at the end of the year after all adjustments and was being depreciated over ten years with no expectation of salvage then how old do you think the machine is at the end of that particular y
- A machine costs $700,000 and is expected to yield an after-tax net income of $30,000 each year. Management predicts this machine has a 9-year service life and a $140,000 salvage value, and it uses str
- A machine costs $500,000 and is expected to yield an after-tax net income of $19,000 each year. Management predicts this machine has a 8-year service life and a $100,000 salvage value, and it uses str
- Compute the payback period for each of these two separate investments: a. A new operating system for an existing machine is expected to cost $290,000 and have a useful life of four years. The system
- A machine costs $700,000 and is expected to yield an after-tax net income of $52,000 each year. The management predicts that this machine has a 10-year services life and a $100,000 salvage value, and
- A firm acquires a machine for $177,600. It expects the machine to last six years. The estimated salvage value is $9,600 at the end of the machine's useful life. Calculate the depreciation charge for the 1st two years using the straight-line (time) method
- A large, profitable corporation with net income exceed $20 million is considering the installation of a new machine that cost $100,000 with the expected salvage value of $20,000 after 4 years of usefu
- A machine costs $180,000 and will have an eight-year life, a $20,000 salvage value, and straight-line depreciation is used. Management estimates the machine will yield an after-tax net income of $12,500 each year. Compute the accounting rate of return for
- A company bought a machine that has an expected life of 7 years and no salvage value. Management estimates that this machine will generate annual after-tax net income of $540. If the accounting rate of return is 12%, what was the purchase price of the mac
- A machine costs $380,000, has a $20,000 salvage value, is expected to last eight years, and will generate an after-tax income of $60,000 per year after straight-line depreciation. The company requires a 10% rate of return on its investments. Compute the
- A machine can be purchased for $110,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value. [TABLE] Compute the machine's payback p
- Compute the payback period for each of these two separate investments: a. A new operating system for an existing machine is expected to cost $240,000 and have a useful life of six years. The system yields an incremental after-tax income of $69,230 each y
- After four years, a machine had an accumulated depreciation of $38,000. The machine originally had an anticipated life of eight years and a salvage value of $5,000. If the current book value after four years is $43,000 and the machine has only two years o
- A machine purchased 3 years ago for $360,000 has a current book value using straight-line depreciation of $200,000; its operating expenses are $30,000 per year. A replacement machine would cost $240,000, have a useful life of 9 years, and would require $1
- A machine purchased three years ago for $720,000 has a current book value using straight-line depreciation of $400,000; its operating expenses are $60,000 per year. A replacement machine would cost $480,000, have a useful life of nine years, and would req
- A machine purchased three years ago for $318,000 has a current book value using straight-line depreciation of $180,000; its operating expenses are $37,000 per year. A replacement machine would cost $239,000, have a useful life of eleven years, and would r
- A new machine is expected to produce 600,000 units of product during its 8-year useful life. The machine cost $1,800,000 cash and it is estimated to have a $60,000 salvage value. Calculate the deprec
- A machine purchased three years ago for $302,000 has a current book value using straight-line depreciation of $189,000; it's operating expenses are $37,000 per year. A replacement machine would cost $
- 1. A machine purchased three years ago for $314,000 has a current book value using straight-line depreciation of $181,000; its operating expenses are $38,000 per year. A replacement machine would cost
- A machine purchased three years ago for $309,000 has a current book value using straight-line depreciation of $181,000: its operating expenses are $34,000 per year. A replacement machine would cost $2
- A company bought a machine that has an expected life of seven years and no salvage value. Management estimates that this machine will generate annual after-tax net income of $540. If the accounting ra
- A machine can be purchased for $70,000 and used for five years, yielding the following net incomes. In projecting not incomes, straight-line depreciation is applied, using a five-year life and a zero-salvage value. Year 1 Year 2 Year 3 Year 4 Year 5 Net i
- A machine costing $153,000 was purchased on May 1. The machine should be obsolete after four years and, therefore, no longer useful to the company. The estimated salvage value is $15,000. Calculate the depreciation expense for each year of its expected u
- The current machine provides sales revenue of R100,000 and a cash operating cost of R20,000. Its current market value is R25,000. The expected resale value of the old and new machine in 3 years' time would be R14,000 and R16,600 respectively. The corporat
- The new machine cost $320,000 16 years of useful life no salvage value new machine cost $54,000 per year to operate and maintain saves $95,000 per year in labor and other costs old machine can be sold now for scrap for the $32,000. The simple rate of ret
- Warburg Company is planning to purchase a new machine for $91,435 with no salvage. The new machine is expected to produce cash inflows from operations before income taxes of $25,397 a year in each of the next 14 years. Depreciation will be charged to inco
- A machine can be purchased for $190,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied, using a five-year life and a zero salvage value. | |Year 1 | Year 2 | Year 3 | Year 4 |
- A firm acquires a machine for $177,600. It expects the machine to last six years. The estimated salvage value is $9,600 at the end of the machine's useful life. Calculate the depreciation charge for the 1st two years using the double-declining balance me
- Crea Company is considering buying a machine for $58,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate cash inflow of $8,000 and net income of $13,800 e
- A company's old machine that cost $47,000 and had accumulated depreciation of $36,300 was traded in on a new machine having an estimated 20-year life with an invoice price of $57,700. The company also paid $49,300 cash, along with its old machine to acqui
- A company's old machine that cost $56,000 and had accumulated depreciation of $44,400 was traded in on a new machine having an estimated 20-year life with an invoice price of $67,600. The company also paid $57,400 cash, along with its old machine to acqui
- A company's old machine that cost $40,000 and had accumulated depreciation of $22,000 was traded in on a new machine having an estimated 20-year life with an invoice price of $45,000. The company also paid $33,000 cash, along with its old machine to acqui
- A machine has a cost of $180. It will have a life of 3 years, and will be depreciated straight-line to zero salvage value. It will result in sales revenue of $200 per year and cash operating costs of $110 per year. Use of the machine will require an incre
- A company buys a machine for $70,000 that has an expected life of 6 years and no salvage value. The company anticipates a yearly net income of $3,300 after taxes of 30%, with the cash flows to be rece
- New machine costs: $300,000 software and installation: $84,000 maintence per year: 48,000 replacement of parts in 3 years: $47,000 would save : $114,000+$7,500 per year old scraps of old machine: $17,000 salvage value in year six $30,000 rate of return: 1
- A machine was purchased for $37,000 and depreciated for five years on a straight-line basis under the assumption it would have a ten-year life and a $1,000 salvage value. At the beginning of the machine's sixth year, it was recognized the machine had thre
- A company buys a machine for $76,000 that has an expected life of 6 years and no salvage value. The company anticipates a yearly after-tax net income of $1,805. What is the accounting rate of return? a) 2.85%. b) 4.75%. c) 6.65%. d) 9.50%. e) 42.75%.
- Anglemenesis Company is planning to spend $84,000 for a new machine that is to be depreciated on a straight-line basis over 10 years with no salvage value. The related cash flows, net of taxes, are ex
- A machine costing $145,800 is purchased on May 1, 2013. The machine is expected to be obsolete after three years (36 months) and, thereafter, no longer useful to the company. The estimated salvage value is $5,400. Compute depreciation expense for both 20
- A machine costing $145,800 is purchased on May 1, 2013. The machine is expected to be obsolete after three years (36 months) and, thereafter, no longer useful to the company. The estimated salvage value is $5,400. Compute depreciation expense for both 201
- You are thinking of buying a new machine for your business. The cost of the new machine is $50,000 and it will have a depreciable life of 5 years. This machine will save you $10,000 a year in operating costs. Your firm uses straight-line depreciation. Has
- A company's old machine, which cost $30,000 and had accumulated depreciation of $21,000, was traded in on a new machine of like purpose having an estimated 20-year life with an invoice price of $40,000. The company also paid $33,000 cash, along with its o
- An old machine that originally cost $9,500 thus far has accumulated depreciation of $1,900. The remaining useful life is four years, with no salvage value at the end of its useful life. A new machine is now available that costs $8,500, with a useful life
- A machine costing Rs 1,00,000 with no salvage value and estimated life of 10 years had the following balances at the end of 2 years: Machinery: Rs 1,00,000 Accumulated Depreciation: Rs 20,000 It was estimated that the future life would be 4 years inste
- A machine has a cost of $17,700, an estimated residual value of $3,960, and an estimated useful life of five years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated depr
- A machine has a cost of $25,000, an estimated residual value of $5,000, and an estimated useful life of four years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated depr
- A machine has a cost of $15,900, an estimated residual value of $3,990, and an estimated useful life of five years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated depr
- (Ignore income taxes in this problem.) Baldock Inc. is considering the acquisition of a new machine that costs $373,000 and has a useful life of 5 years with no salvage value. The incremental net oper
- Machinery acquired new on January 1 at a cost of $50,000 was estimated to have a useful life of 10 years and a residual salvage value of $20,000. Straight-line depreciation was used. On January I, following six full years of use of the machinery, manageme
- A machine has a cost of $17,100, an estimated residual value of $4,110, and an estimated useful life of eight years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated dep
- A machine has a cost of $17,100, an estimated residual value of $4,050, and an estimated useful life of eight years. The machine is being depreciated on a straight-line basis. At the end of the second year, what amount will be reported for accumulated dep
- A machine with a cost of $1,700,000 has an estimated salvage value of $20,000 and an estimated useful life of 5 years or 60,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depredation for the se
- A machine will cost $45,000 and is expected to generate equal annual cash flows of $15,000 at the end of each of the next five years. In addition, the machine is expected to have a salvage value of $8,000 at the end of the fifth year. Determine the net pr
- Gravina Company is planning to spend $8,000 for a machine that it will depreciate on a straight-line basis over 10 years with no salvage value. The machine will generate additional cash revenues of $1
- Compute the payback period for each of these two separate investments: 1. A new operating system for an existing machine is expected to cost $270,000 and have a useful life of five years. The system
- Lao Jao So Professor Mullen's Company is considering buying a machine for $180,000 with an estimated life of ten years and no salvage value. The straight-line method of depreciation will be used. The machine is expected to generate a net accounting income
- A machine can be purchased for $236,000 and used for five years, yielding the following net income. 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
- O'Hara Co. is interested in acquiring a new machine that costs $92,000. The machine will last 6 years and provide a cost savings of $23,000 a year. The salvage value of the machine is $10,000. The required rate of return is 12%. Compute the project's net