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A company is planning to purchase a machine that will cost $26,400, has a six-year life, and would be depreciated over a three-year period with
A company is planning to purchase a machine that will cost $26,400, has a six-year life, and would be depreciated over a three-year period with 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 | |
Cost: | ||
Manufacturing | $52,400 | |
Depreciation on machine | 4,400 | |
Selling and administrative expenses | 34,000 | (90,800) |
Income before taxes | $11,200 | |
Income tax (35%) | (3,920) | |
Net income | $7,280 | |
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