A company is planning to purchase a machine that will cost $26,400, has a six-year life, and would 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 |
|
$102,000 |
| Cost: |
|
|
| Manufacturing |
$52,400 |
|
| Depreciation on machine |
4,400 |
|
| Selling and administrative expenses |
34,000 |
(90,800) |
|
|
|
| Income before taxes |
|
$11,200 |
| Income tax (35%) |
|
(3,920) |
|
|
|
| Net income |
|
$7,280 |
|
|
|