Answered

Get the information you need with the help of IDNLearn.com's extensive Q&A platform. Join our knowledgeable community to find the answers you need for any topic or issue.

Pique Corporation wants to purchase a new machine for $300,000.Management predicts that the machine can produce sales of $200,000 each year for the next 5 years.Expenses are expected to include direct materials,direct labor,and factory overhead (excluding depreciation)totaling $80,000 per year.The firm uses straight-line depreciation with no residual value for all depreciable assets.Pique's tax rate is 40%.Management requires a minimum 10% rate of return on all investments.What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year. )
A) 2.5 years.
B) 2.7 years.
C) 3.1 years.
D) 3.6 years.
E) 4.2 years.

Sagot :

Answer:

c

Explanation:

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Payback period = Amount invested / cash flow

Cash flow = profit after tax + depreciation

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

(300,000 - 0) / 5 = $60,000

Profit after tax = (1 - tax rate) x (sales - expenses - depreciation)

0.6 x ($200,000 - $80,000 - $60,000) = $36,000

Cash flow = $36,000 + 60,000 = 96,000

Payback period = $300,000 / $96,000 = 3.1 years

Thank you for joining our conversation. Don't hesitate to return anytime to find answers to your questions. Let's continue sharing knowledge and experiences! Find the answers you need at IDNLearn.com. Thanks for stopping by, and come back soon for more valuable insights.