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Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (Ignore income taxes.):
Incremental Net Operating Income Incremental Net Cash Flows
Year 1 $ 54,000 $ 128,000
Year 2 $31,000 $105,000
Year 3 $ 52,000 $126,000
Year 4 $49,000 $123,000
year 5 $48,000 $122,000
Assume cash flows occur uniformly throughout a year except for the initial investment. The payback period of this investment is closest to:__________.
a. 2.9 years
b. 4.9 years
c. 3.1 years
d. 5.0 years

Respuesta :

Answer:

3.1 years

Explanation:

The computation of the payback period is shown below:

Years Incremental Net Cash Flows Accumulated cash flows

0 -$370,000 -$370,000

1 $128,000 -$242,000

2 $105,000 -$137,000

3 $126,000 -$11,000

4 $123,000 $112,000

Now the Payback period is

= 3 + ($11000 ÷ $123,000)

= 3.1 years

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