A machine can be purchased for $281,000 and used for five years, yielding the following net incomes. In projecting net incomes,

double-declining depreciation is applied using a five-year life and a zero salvage value.

year 1 - 11,000

year 2 - 30,000

year 3 - 66,000

year 4 - 56,500

year 5 - 135,000

Computation of Annual Depreciation Expense Year Beginning Book Value Annual Depr. (40% of Book Value) Accumulated Depreciation at Year-End Ending Book Value 1 2 3 4 5 Annual Cash Flows Year Net income Depreciation Net Cash Flow Cumulative Cash Flow $ (281,000) $ o 1 2 (281,000) 11,000 30,000 66,000 56,500 135,000 3 66,000 56,500 135,000 66,000 122,500 257,500 4 5 Payback period years