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one homework question, split into two parts. part 1: A machine can be purchased for $253,000 and...

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Accounting

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 1Year 2Year 3Year 4Year 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:

  1. 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.
  2. 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.)

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