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10 April, 05:31

A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine? a. 4 years. b. 6 years. c. 10.5 years. d. 14 years. e. 42 years.

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  1. 10 April, 05:55
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    b. 6 years.

    Explanation:

    The formula and the calculation of the payback period is presented below:

    = Initial investment : Net cash flow

    where,

    Initial investment is $263,000

    And, the net cash flow = After-tax net income + depreciation expenses

    = $2,000 + $1,500

    = $3,500

    Now placed these values in the formula above, so the period would be equal to

    = ($21,000) : ($3,500)

    = 6 years
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Home » Business » A company is considering purchasing a machine for $21,000. The machine will generate an after-tax net income of $2,000 per year. Annual depreciation expense would be $1,500. What is the payback period for the new machine? a. 4 years. b. 6 years. c.
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