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Exercise 24-4 Payback period; accelerated depreciation LO P1 A machine can be purchased for $233,000...

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Accounting

Exercise 24-4 Payback period; accelerated depreciation LO P1

A machine can be purchased for $233,000 and used for five years, yielding the following net incomes. In projecting net incomes, double-declining depreciation is applied, using a five-year life and a zero salvage value.

Year 1 Year 2 Year 3 Year 4 Year 5
Net income $ 19,500 $ 44,000 $ 51,000 $ 52,500 $ 121,000

Compute the machines payback period (ignore taxes). (Round payback period answer to 3 decimal places.)

Computation of Annual Depreciation Expense
Year Beginning Book Value Annual Depr. (40% of Book Value) Accumulated Depreciation at Year-End Ending Book Value
1
2
3
4
5
Annual Cash Flows
Year Net income Depreciation Net Cash Flow Cumulative Cash Flow
0 $(233,000) $(233,000)
1 19,500
2 44,000
3 51,000
4 52,500
5 121,000
Payback period = years

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