# Baldock Inc. is considering the acquisition of a new machine that costs $426,000 and has a useful...

## Question:

Baldock Inc. is considering the acquisition of a new machine that costs $426,000 and has a useful life of 5 years with no salvage value.

The incremental net operating income and incremental net cash flows that would be produced by the machine are :

Incremental Net Operating Income | Incremental Net Cash Flows | |
---|---|---|

Year 1 | $67,000 | $148,000 |

Year 2 | $73,000 | $150,000 |

Year 3 | $84,000 | $175,000 |

Year 4 | $47,000 | $149,000 |

Year 5 | $89,000 | $151,000 |

Assume cash flows occur uniformly throughout a year, except for the initial investment.

The payback period of this investment is closest to:

a. 5.0 years

b. 2.7 years

c. 4.3 years

d. 2.1 years

## Payback Period:

Payback period analysis is one of the several capital budgeting techniques used by any firm, others being, net present value method, internal rate of return method, simple rate of return method, profitability index method etc. Payback period is the period over which the initial investment gets recovered ignoring the time value of money.

## Answer and Explanation: 1

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

View this answerThe correct answer to the given question is option b. 2.7 years.

The sum of incremental cash flows for the first two years is given by:

- = $148,000 +...

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

- Baldock Inc. is considering the acquisition of a new machine that costs $435,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. is considering the acquisition of a new machine that costs $361,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. Is considering the acquisition of a new machine that costs $423,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash
- Baldock Inc. is considering the acquisition of a new machine that costs $355,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. is considering the acquisition of a new machine that costs $364,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash f
- Baldock Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The incremental net oper
- Baldock Inc. is considering the acquisition of a new machine that costs $358,000 and has a useful life of 5 years with no salvage value. The incremental net oper
- Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net oper
- Baldock Inc. is considering the acquisition of a new machine that costs $470,000 and has a useful life of 5 years with no salvage value. The incremental net oper
- Baldock Inc. is considering the acquisition of a new machine that costs $367,000 and has useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:
- Baldock Inc. is considering the acquisition of a new machine that costs $458,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are: Increme
- Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cas
- Vandezande Inc. is considering the acquisition of a new machine that costs $458,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (Igno
- (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
- Gull Inc. is considering the acquisition of equipment that costs $430,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows
- 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
- Tippet Inc. is considering the purchase of a new machine, which costs $350,000. The machine is expected to be depreciated on a straight line basis over the useful life of 5 years with no residual valu
- Gull Inc. is considering the acquisition of equipment that costs $560,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipmen
- Gull Inc. is considering the acquisition of equipment that costs $480,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipmen
- Gull Inc. is considering the acquisition of equipment that costs $570,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipmen
- Gull Inc. is considering the acquisition of equipment that costs $520,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipmen
- A firm is considering the purchase of one of two new machines. The data on each are as follows: Initial cost $3,400 $6,500 Service life 3 Years 6 Years Salvage Value $100 $500 Net operating cost after
- Mcclam, Inc., is considering the purchase of a machine that would cost $100,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $23,000. The machine would
- Acme Company is considering investing in a new machine that costs $62,260 and that has a useful life of 12 years with no salvage value. The machine will generate $11,000 annually in net cash inflows.
- Acme Company is considering investing in a new machine that costs $54,878 and that has a useful life of 9 years with no salvage value. The machine will generate $11,500 annually in net cash inflows. T
- Hull Inc. is considering the acquisition of equipment that costs $200,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are as follows. Year 1 = $77,000 Year 2 = $67,000 Yea
- Win Inc. is considering disposing of a machine with a book value of $23,321.00 and an estimated remaining life of three years. The old machine can be sold for $5,976.00. A new machine with a purchase
- Win Inc. is considering disposing of a machine with a book value of $24,949.00 and an estimated remaining life of three years. The old machine can be sold for %5,628.00. A new machine with a purchase
- Paragas, Inc., is considering the purchase of a machine that would cost $370,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $52,000. The machine would
- MC QU. 92 (Ignore income taxes in this problem.)Gull Inc. is considering the acquisition of equipment that costs $430,000 and has a useful life of 6 years with no salvage value. The incremental net c
- Millco Inc., acquired a machine that cost $1,200,000 early in 2016. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $180,000. Using straight-line depreciation, calculate the depreciation expense
- Millco, Inc., acquired a machine that cost $450,000 early in 2016. The machine is expected to last for ten years, and its estimated salvage value at the end of its life is $65,000. a. Using straight-line depreciation, calculate the depreciation expense
- Millco, Inc., acquired a machine that cost $240,000 early in 2010. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $24,000. a. Using straight-line depreciation, calculate the depreciation expense
- The management of Kountz Corporation is considering the purchase of a machine that would cost $74,520 and would have a useful life of 8 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $20,000 per
- Horowitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $176,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual ca
- Arnold Inc. is considering the purchase of a machine that costs $100,000, has a useful life of 18 years, and no salvage value. The company's discount rate is 12%. If the machine's net present value is $5,850, then the annual cash inflows associated with t
- Dunken, Inc., is considering the purchase of a machine that would cost $110,000 and would last for 4 years. At the end of 4 years, the machine would have a salvage value of $18,000. The machine would
- 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
- Riveros, Inc., Is considering the purchase of a machine that would cost $136,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $37,000. The machine would
- Riveros, Inc., is considering the purchase of a machine that would cost $120,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $29,000. The machine would
- Riveros, Inc. is considering the purchase of a machine that would cost $120,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $29,000. The machine would
- 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
- R&R, Inc., purchased a new machine on September 1, 2013, at a cost of $180,000. The machine's estimated useful life at the time of the purchase was five years, and its expected residual value was $10,
- A company is considering the purchase of new equipment for $66,000. The projected annual net cash flows are $26,700. The machine has a useful life of 3 years and no salvage value. Management of the co
- Bonka, Inc., is considering a robot that will cost $5,000 to purchase. At the end of its 8 year life, its salvage value will be $1,000. The robot will need to be overhauled in year 4 at a cost of $2,0
- Lebert, Inc., is considering the purchase of a machine that would cost $380,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $49,000. The machine would reduce labor and other costs by $96,000 per year. Addit
- Lebert, Inc., is considering the purchase of a machine that would cost $380,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $49,000. The machine would
- Millco Inc., acquired a machine that cost $496,000 early in 2019. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $70,000. What will be the net book value of the machine at the end of its eighth y
- The management of Boie Corporation is considering the purchase of a machine that would cost $340,980 and would have a useful life of 6 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $86,000 per
- Sloman Company is considering purchasing a machine that would cost $436,800 and have a useful life of 5 years. The machine would reduce cash operating costs by $132,364 per year. The machine would have no salvage value. a. Compute the payback period for
- BSU Inc. is planning to purchase a new machine for $41,100, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,
- On January 1, 2015, Truesdate, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33, 000. The machine has an estimated useful life of 3 years and a salvage va
- Heidi Company is considering the acquisition of a machine that costs $420,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $120,00
- The management of Boie Corporation is considering the purchase of a machine that would cost $330,980 and would have a useful life of 6 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $76,000 per
- Yarrow Co. is considering the purchase of a new machine that costs $450,000. The new machine will generate net cash flow of $150,000 per year and net income of $100,000 per year for five years. Yarrow's desired rate of return is 6%. The present value fact
- On 1/1/2016 Trublood, Inc. purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a residual value $3,000
- Janes, Inc. is considering the purchase of a machine that would cost $550,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $55,000. The machine would redu
- Millco, Inc., acquired a machine that cost $1,200,000 early in 2016. The machine is expected to last for eight years, and its estimated salvage value at the end of its life is $180,000. Required: a.
- 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
- Renfroe Corporation is considering the purchase of a machine that would cost $22,712 and would have a useful life of 5 years. The machine would generate $6,300 of net annual cash inflows per year for
- Burtle Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $488,000 cost with an expected four-year life and a $15,200 salvage value. All sales are for cash, and all costs are out
- Hayden Company is considering the acquisition of a machine that costs $579,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $100,000, and an annual operating income of $85,000. What is
- Hayden Company is considering the acquisition of a machine that costs $675,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash flow of $150,000, and annual operating income of $87,500. What is the
- Dinkins Inc. is considering disposing of a machine with a book value of $50,000 and an estimated remaining life of five years. The old machine can be sold for $15,000. A new machine with a purchase price of $150,000 is being considered as a replacement. I
- Miracle Inc. acquired a machine that cost $50,000 early in 1999. The machine is expected to last for 10 years, and its estimated salvage value at the end of its life is $5,000. Using straight-line depreciation, calculate the depreciation expense to be rec
- Millco, Inc., acquired a machine that cost $592,000 early in 2016. The machine is expected to last for eighth years, and its estimated salvage value at the end of its life is $79,000. B. Using declin
- M.T. Glass, Inc. is considering the acquisition of a new piece of heavy machinery to replace an old, outdated machine currently used in its business operations. The new machine would cost $180,000 and is expected to last 9 years. The new machine would req
- Concorde Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $100,000 cost with an expected five-year life and a $25,000 salvage value. All sales are for cash and all costs are out
- 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
- Porter, Inc., acquired a machine that cost $376,000 on October 1, 2016. The machine is expected to have a five-year useful life and an estimated salvage value of $42,000 at the end of its life. Porter
- Tangen Corporation is considering the purchase of a machine that would cost $394,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $87,000. By reducing labor and other operating costs, the machine would provi
- 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 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 $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 $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 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
- Parkways Inc. is considering the purchase of a new machine. The machine will cost $60,000 to purchase and will generate $15,000 of cash revenues per year for the next 8 years. The machine will cost $1,000 per year to operate & maintain. At the end of its
- Bob & Robin, Inc., purchased a new machine on October 1, 2001, at a cost of $144,000. The machine's estimated useful life at the time of the purchase was 6 years, and its residual value was $12,000. I
- A new machine can be bought for $12,000 with a life of 7 years and no salvage value, operating costs are estimated as follows: $8,000; $8,560; $9,159.20; $11, 220.41; $12,005.84. If the MARR is 15%, determine the present worth of the machine.
- Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0-
- The management of Elamin Corporation is considering the purchase of a machine that would cost $305,745 and would have a useful life of 9 years. The machine would have no salvage value. The machine would reduce labor and other operating costs by $51,000 pe
- 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 |
- Gillaspie, Inc., is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $51,000. The machine would reduce labor and other costs by $86,000 per year. Ad
- Swanson & Hiller, Inc., purchased a new machine on September 1, 2012 at a cost of $169,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $
- Swanson & Hiller, Inc., purchased a new machine on September 1, 2012 at a cost of $130,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $
- Swanson & Hiller, Inc. purchased a new machine on September 1, 2012, at a cost of $108,000. The machine's estimated useful life at the time of the purchase was five years, and its residual value was $
- The new Big Electical Warehouse, Inc., is thinking of buy a new machine on January 1, 2016 for $100,000 and have an estimated salvage value at the end of its estimated 5-year estimated life of $15,000
- Chudzick Company has a factory machine with a book value of $98,000 and a remaining useful life of 5 years. A new machine is available at a cost of $240,000. This machine will have a 5-year useful life with no salvage value. The new machine will lower ann
- 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
- On January 1, 2016. Kristen Company purchased for $110,000 a new machine that has an estimated useful life of ten years (or 500,000 stamping operations), after which the expected salvage value is $10,
- Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $250,000 $500,000 Accumulated Depreciation $75,000 $0 Remaining useful life 10 years 0 Useful life 0 10
- (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $650,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows
- Swanson & Hiller, Inc., purchased a new machine on September 1, 2012 at a cost of $150,000. The machine?s estimated useful life at the time of the purchase was five years, and its residual value was $
- Swanson & Hiller, Inc. purchased a new machine on September 1, 2012 at a cost of $129,000. The machine?s estimated useful life at the time of the purchase was five years, and its residual value was $
- 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 $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
- 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
- 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