Evaluate capital expenditure proposals using payback period analyses (additional asset). (Obj. 2). Playtime Clothing Manufacturers is considering the purchase of an additional machine that will cost $120,000. It has an expected useful life of 10 years and will have no salvage value. It is estimated that purchasing the machine will result in annual cash savings of $20,000. The company uses the straightline method in computing depreciation for both accounting and tax purposes. Its income tax rate is 35 percent. Compute the payback period for the proposed expenditure.

LO.1