The Snacks Galore is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: Soda Machines Snack Machines Investment $100,000 $150,000 Useful life (years) 5 10 Estimated annual net income generated over useful life $30,000 $18,000 Residual value $10,000 $5,000 Depreciation method straight-line straight-line Income tax rate 20% 20% Required rate of return 8% 12% Calculate the payback period for the snack machines. Select one: a. 2.08 years b. 4.55 years c. 4.46 years d. 4.62 years e. 2.00 years
The Snacks Galore is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: Soda Machines Snack Machines Investment $100,000 $150,000 Useful life (years) 5 10 Estimated annual net income generated over useful life $30,000 $18,000 Residual value $10,000 $5,000 Depreciation method straight-line straight-line Income tax rate 20% 20% Required rate of return 8% 12% Calculate the payback period for the snack machines. Select one: a. 2.08 years b. 4.55 years c. 4.46 years d. 4.62 years e. 2.00 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Snacks Galore is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:
|
|
Soda Machines |
Snack Machines |
|
Investment |
$100,000 |
$150,000 |
|
Useful life (years) |
5 |
10 |
|
Estimated annual net income generated over useful life |
$30,000 |
$18,000 |
|
Residual value |
$10,000 |
$5,000 |
|
|
straight-line |
straight-line |
|
Income tax rate |
20% |
20% |
|
Required |
8% |
12% |
Calculate the payback period for the snack machines.
Select one:
a. 2.08 years
b. 4.55 years
c. 4.46 years
d. 4.62 years
e. 2.00 years
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