Reference no: EM132492628

Question 1: A company is planning to purchase a machine that will cost $42,000 with a six-year life and 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                                                     $105,000

Costs:     

Manufacturing                                          $57,000

Depreciation on machine                               7,000

Selling and administrative expenses 35,000   (99,000)

Income before taxes                                $6,000

Income tax (30%)                                   (1,800)

Net income                                             $4,200

Multiple Choice

Option 1: 120.00 years.

Option 2: 6.00 years.

Option 3: 10.00 years.

Option 4: 3.75 years.

Option 5: 1.25 year.