Homework SourseA machine can be purchased for 180000 and used for five year
A machine can be purchased for $180,000 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.
Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.)
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||||||||||||||||||||||||||||||||
| Net income | $ | 12,100 | $ | 30,100 | $ | 69,000 | $ | 45,300 | $ | 120,400 | ||||||||||||||||||||||||||||||
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| Payback Period: |
Solution
Year
Net Income
Depreciation
Net Cash Flow
Cumulative Cash Flow
0
$(180,000.00)
$ (180,000.00)
1
$ 12,100.00
$ 36,000.00
$ 12,100.00
$ (167,900.00)
2
$ 30,100.00
$ 36,000.00
$ 30,100.00
$ (137,800.00)
3
$ 69,000.00
$ 36,000.00
$ 69,000.00
$ (68,800.00)
4
$ 45,300.00
$ 36,000.00
$ 45,300.00
$ (23,500.00)
5
$120,400.00
$ 36,000.00
$ 120,400.00
$ 96,900.00
Payback Period =
A+
B
C
In the above formula,
A is the last period with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A
Payback Period =
4+
$ 23,500.00
$ 120,400.00
Payback Period =
(4+0.195)
4.195
Years
| Year | Net Income | Depreciation | Net Cash Flow | Cumulative Cash Flow |
| 0 | $(180,000.00) | $ (180,000.00) | ||
| 1 | $ 12,100.00 | $ 36,000.00 | $ 12,100.00 | $ (167,900.00) |
| 2 | $ 30,100.00 | $ 36,000.00 | $ 30,100.00 | $ (137,800.00) |
| 3 | $ 69,000.00 | $ 36,000.00 | $ 69,000.00 | $ (68,800.00) |
| 4 | $ 45,300.00 | $ 36,000.00 | $ 45,300.00 | $ (23,500.00) |
| 5 | $120,400.00 | $ 36,000.00 | $ 120,400.00 | $ 96,900.00 |
