Reference no: EM132043221

Question - Payback period computation; even cash flows

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

a. A new operating system for an existing machine is expected to cost $300,000 and have a useful life of four years. The system yields an incremental after-tax income of $86,538 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $12,000.

b. A machine costs $170,000, has a $16,000 salvage value, is expected to last seven years, and will generate an after-tax income of $47,000 per year after straight-line depreciation.

A machine costs $600,000 and is expected to yield an after-tax net income of $23,000 each year. Management predicts this machine has a 9-year service life and a $120,000 salvage value, and it uses straight-line depreciation. Compute this machine's accounting rate of return. (Round your answer to 2 decimal places.)