Exercise 24-3 Payback period computation; straight-line depreciation LO P1 A machine can be purchased for $230,000 and used for five years, yielding the following net incomes. In projecting net incomes, straight-line depreciation is applied using a five-year life and a zero salvage value. Year 1 $15, 600 Year 2 $38,600 Year 3 $106,000 Year 4 $58,300 Year 5 $154,400 Net income Compute the machine's payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and round payback period answer to 3 decimal places.) Year Net Income Depreciation Net Cash Flow Cumulative Cash Flow $ $ (230,000) 230,000) (184,000) $ $ 15,600 38,600 106,000 58,300 154,400 46,000 46,000 46,000 46,000 46,000 Payback period = 1 Answer is not complete. Year Computation of Annual Depreciation Expense Beginning Annual Depr. Accumulated Book (40% of Book Depreciation at Ending Value Value) Year-End Book Value 215,000 86,000 86,000 129,000 129,000 51,600 17,200 X 77,400 77,400 30,960 48,160 46,440 46,440 18,576 66,736 27,864 27,864 27,864 94.6000 2 Annual Cash Flows Depreciation Net Cash Flow Year Cumulative Cash Flow $ (215,000) (110,500) 104,500 Net income $ (215,000) 18,500 43,000 61,000 53,500 139,000 86,000 51,600 30,960 18,576 27,864 91,960 72,076 166,864 91,960 164,036 330,900 Payback period = years Required information Use the following information for the Quick Study below. [The following information applies to the questions displayed below.] Project A requires a $405,000 initial investment for new machinery with a five-year life and a salvage value of $43,500. The company uses straight-line depreciation. Project A is expected to yield annual net income of $23,200 per year for the next five years. QS 24-6 Accounting rate of return LO P2 QS 24-6 Accounting rate of return LO P2 Compute Project A's accounting rate of return. Answer is complete but not entirely correct. Choose Numerator: Annual after-tax net income 23,200 Accounting Rate of Return Choose Denominator: Annual average investment $ i Accounting Rate of Return Accounting rate of return 30.38 % 76,360