Question

Blaylock Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $384,000. The NC equipment will last 5 years with no expected salvage value. The expected after-tax cash flows associated with the project follow: Year Cash Revenues Cash Expenses 1 $510,000 $360,000 2 510,000 360,000 3 510,000 360,000 4 510,000 360,000 5 510,000 360,000 Required: 1. Compute the payback period for the NC equipment. Round your answer to two decimal places.

Answer 1

Answer:

2.56 years

Explanation:

Payback period calculates the amount of time it takes to recover the amount invested in a project from its cumulative cash flows.

payback period = amount invested / cash flows

cash flows = $510,000 - $360,000 = $150,000

$384,000 / $150,000 = 2.56 years