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What is the payback period for the new machine

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Question - Build Corporation wants to purchase a new machine for $290,000. Management predicts that the machine can produce sales of $198,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Build's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 14% on all investments.

Required - What is the payback period for the new machine (rounded to nearest one-tenth of a year)? (Assume that the cash inflows occur evenly throughout the year.)

Reference no: EM133095462

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