Question

can buy a machine that is expected to have a three-year life and a $30,000 salvage value. It will be depreciated using the straight-line method. The machine will cost $2,100,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. The company requires a 12% rate of return on its investments. What is the payback period?

Answer 1

The payback period = Initial cost / Annual return

                                 = 2,100,000 / 200,000

                                 = 10.5 years