A company is considering purchasing a machine for $30,600. The machine will generate income of $3,200 per year. Annual depreciation expense would be $2,800. What is the payback period for the new machine?
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The payback period is the time it takes for an investment to generate an amount equal to the original investment. In this case, the company is considering purchasing a machine for $30,600. The machine will generate income of $3,200 per year, but there will also be an annual depreciation expense of $2,800.
To calculate the payback period, we need to subtract the annual depreciation expense from the annual income to find the net annual income. Then, we divide the cost of the machine by the net annual income.
Net annual income = $3,200 - $2,800 = $400
Payback period = $30,600 / $400 = 76.5 years
Therefore, the payback period for the new machine would be 76.5 years.
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