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Exercise 11-5 Payback period computation; even cash flows LO P1 Compute the payback period for each of these two separate investments: A new operating system

Exercise 11-5 Payback period computation; even cash flows LO P1

Compute the payback period for each of these two separate investments:

A new operating system for an existing machine is expected to cost $280,000 and have a useful life of six years. The system yields an incremental after-tax income of $80,769 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,000.

A machine costs $180,000, has a $15,000 salvage value, is expected to last eight years, and will generate an after-tax income of $44,000 per year after straight-line depreciation.

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