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A company is planning to purchase a machine that will cost $36,000 with a six-year life and no salvage value. The company expects to sell

A company is planning to purchase a machine that will cost $36,000 with a six-year life and no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?

Sales$102,000

Costs:

Manufacturing $56,000

Depreciation on machine6,000

Selling and administrative expenses34,000(96,000)

Income before taxes$6,000

Income tax (35%)(2,100)

Net income$3,900

Multiple Choice

  • 6.00 years.
  • 3.64 years.
  • 9.23 years.
  • 1.36 year.
  • 18.46 years.

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