A company is planning to purchase a machine that will cost $28,800, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine? Sales $114,000
Cost:
Manufacturing $52,800
Depreciation on machine 4,800
Selling and administrative expenses 38,000 (95,600)
Income before taxes $18,400
Income tax (30%) (5,520)
Net income $12,880
a. 3.37 year.
b. 1.63 years.
c. 4.47 years.
d. 6.00 years.
e. 2.24 years.