A machine can be purchased for $252,000 and used for five years,yielding the following net incomes. In projecting net incomes,double-declining depreciation is applied, using a five-year lifeand a zero salvage value.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Net income | | $ | 13,000 | | | $ | 28,000 | | | $ | 62,000 | | | $ | 48,000 | | | $ | 101,000 | |
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Compute the machine’s payback period (ignore taxes). (Roundpayback period answer to 3 decimal places.)
Computation of Annual Depreciation Expense
Year Beginning BookValue Annual Depr. (40% of BookValue) Accumulated Depreciation atYear-End Ending BookValue
1
2
3
4
5
Annual Cash Flows
Year Netincome Depreciation Net CashFlow Cumulative Cash Flow
0 $(252,000) $(252,000)
1 13,000
2 28,000
3 62,000
4 48,000
5 101,000
Payback period= years
