Compute the payback period to the nearest month

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Q1. An asset with a cost of P1,200,000 is to be depreciated over 10 years with no residual value. Profit after depreciation for the first five (5) years are as follows:

Year 1

120,000.00

Year 2

170,000.00

Year 3

280,000.00

Year 4

370,000.00

Year 5

80,000.00

Compute for the Payback Period to the nearest month.

Q2. ABC Company wants to purchase a new line of machinery. Two (2) models are available, one (1) has a slightly higher capacity than the other. The costs and expected benefits are as follows:

 

Machine X

Machine Y

Acquisition cost

80,000.00

150,000.00

Estimated useful life

5

5

Profit before depreciation

Year 1

50,000.00

50,000.00

Year 2

50,000.00

50,000.00

Year 3

30,000.00

60,000.00

Year 4

20,000.00

60,000.00

Year 5

10,000.00

60,000.00

Using Accounting Rate of Return, which equipment should be selected by ABC Company? Show your solution.

Reference no: EM133078532

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