A machine can be purchased for $230,000 and used for five years, yielding the following income. This income computation includes annual depreciation expense of $46,000. Year Year 1 Year 21 Income $15,600 $38,600 Compute the machine's payback period. (Round payback period answer to 2 decimal places.) Initial invest Year 1 Year 2 Year 3 Year 4 Year 5 Year 3 Year 4 $106,000 $58,300 Net Income Depreciation $ 15,600 38,600 106,000 58,300 154,400 Year 5 $154,400 Net Cash Flow $1 (230,000) $ Payback period Cumulative Net Cash Flow (230,000) 0 0
A machine can be purchased for $230,000 and used for five years, yielding the following income. This income computation includes annual depreciation expense of $46,000. Year Year 1 Year 21 Income $15,600 $38,600 Compute the machine's payback period. (Round payback period answer to 2 decimal places.) Initial invest Year 1 Year 2 Year 3 Year 4 Year 5 Year 3 Year 4 $106,000 $58,300 Net Income Depreciation $ 15,600 38,600 106,000 58,300 154,400 Year 5 $154,400 Net Cash Flow $1 (230,000) $ Payback period Cumulative Net Cash Flow (230,000) 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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Transcribed Image Text:A machine can be purchased for $230,000 and used for five years, yielding the following income. This income computation includes
annual depreciation expense of $46,000.
Year 2
Income
Year 1
Year 3 Year 4
$15,600 $38,600 $106,000 $58,300
Compute the machine's payback period. (Round payback period answer to 2 decimal places.)
Year
Initial invest
Year 1
Year 2
Year 3
Year 4
Year 5
Net Income Depreciation Net Cash Flow
$
15,600
38,600
106,000
58,300
154,400
Year 5
$154,400
$/ (230,000) $
Payback period=
Cumulative Net Cash
Flow
(230,000)
0
0
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