March 7, 2020
###### problems total
March 7, 2020

Exercise 25-1 Payback period computation; uneven cash flows LO P1

 Beyer Company is considering the purchase of an asset for \$360,000. It is expected to produce the following net cash flows. The cash flows occur evenly throughout each year.

 Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows \$ 80,000 \$ 50,000 \$ 70,000 \$ 250,000 \$ 13,000 \$ 463,000

Compute the payback period for this investment. (Cumulative net cash outflows must be entered with a minus sign. Round your answers to 2 decimal places.)

 A machine can be purchased for \$210,000 and used for 5 years, yielding the following net incomes. In projecting net incomes, double-declining balance depreciation is applied, using a 5-year life and a zero salvage value.

 Year 1 Year 2 Year 3 Year 4 Year 5 Net incomes \$ 13,000 \$ 28,000 \$ 53,000 \$ 40,500 \$ 103,000

Compute the machine’s payback period (ignore taxes). (Round your intermediate calculations to 3 decimal places and payback period answer to 3 decimal places.)

Exercise 25-3 Payback period computation; even cash flows LO P1

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

 a. A new operating system for an existing machine is expected to cost \$240,000 and have a useful life of four years. The system yields an incremental after-tax income of \$69,230 each year after deducting its straight-line depreciation. The predicted salvage value of the system is \$9,000. b. A machine costs \$180,000, has a \$13,000 salvage value, is expected to last seven years, and will generate an after-tax income of \$38,000 per year after straight-line depreciation.