A company is considering the purchase of a new machine for $87,000. Management predicts that the machine can produce sales of $23,200 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $4,350 per year plus depreciation of $10,800 per year. The company's tax rate is 40%. What is the payback period for the new machine? a.4.62 years b.7.00 years c.18.01 years d.10.81 years e.5.57 years
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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A company is considering the purchase of a new machine for $87,000. Management predicts that the machine can produce sales of $23,200 each year for the next eight years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $4,350 per year plus |
| a.4.62 years | |
| b.7.00 years | |
| c.18.01 years | |
| d.10.81 years | |
| e.5.57 years |
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