Question

Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are:

Answer 1

Answer:

3.1 years

Explanation:

The computation of the payback period is shown below:

Years   Incremental Net Cash Flows  Accumulated cash flows

0          -$370,000                                     -$370,000

1            $128,000                                       -$242,000

2           $105,000                                        -$137,000

3           $126,000                                         -$11,000

4            $123,000                                         $112,000

Now the Payback period is

= 3 + ($11000 ÷ $123,000)

= 3.1 years