one homework question, split into two parts.
part 1:
A machine can be purchased for $253,000 and used for five years,yielding the following net incomes. In projecting net incomes,double-declining depreciation is applied using a five-year life anda zero salvage value.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Net income | | $ | 17,000 | | | $ | 32,000 | | | $ | 78,000 | | | $ | 46,500 | | | $ | 129,000 | |
|
Compute the machine’s payback period (ignore taxes). (Roundpayback period answer to 3 decimal places.)
part 2:
- A new operating system for an existing machine is expected tocost $770,000 and have a useful life of six years. The systemyields an incremental after-tax income of $195,000 each year afterdeducting its straight-line depreciation. The predicted salvagevalue of the system is $29,000.
- A machine costs $540,000, has a $32,000 salvage value, isexpected to last eight years, and will generate an after-tax incomeof $78,000 per year after straight-line depreciation.
Assume the company requires a 12% rate of return on itsinvestments. Compute the net present value of each potentialinvestment. (PV of $1, FV of $1, PVA of $1, and FVA of $1)(Use appropriate factor(s) from the tablesprovided.)
