Managerial Accounting

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Calculating Payback Period for a Machine

MGRACT-KKPYFG

A company will spend \$12,000 for a new machine which has a useful life of ten years. The company will depreciate the machine over the ten years using the straight-line method and assuming no residual value. The machine will generate annual net cash inflows of \$2,400 (after any tax shields). If the income tax rate is 50 percent, what is the payback period?

A

3.3 years

B

5.0 years

C

6.7 years

D

10.0 years