Question
A company is planning to purchase a machine that will cost $57,600 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 $57,600 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 | $ | 150,000 | |||||
Costs: | |||||||
Manufacturing | $ | 73,000 | |||||
Depreciation on machine | 9,600 | ||||||
Selling and administrative expenses | 54,000 | (136,600 | ) | ||||
Income before taxes | $ | 13,400 | |||||
Income tax (30%) | (4,020 | ) | |||||
Net income | $ | 9,380 | |||||
Multiple Choice
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6.00 years.
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3.03 years.
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12.28 years.
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6.14 years.
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1.97 year.
Carmel Corporation is considering the purchase of a machine costing $49,000 with a 9-year useful life and no salvage value. Carmel uses straight-line depreciation and assumes that the annual cash inflow from the machine will be received uniformly throughout each year. In calculating the accounting rate of return, what is Carmel's average investment?
Multiple Choice
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$5,444.
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$49,000.
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$24,500.
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$27,222.
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$6,049.
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