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A company is planning to purchase a machine that will cost $57,000 with a six-year life...

A company is planning to purchase a machine that will cost $57,000 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 $ 132,000
Costs:
Manufacturing $ 66,000
Depreciation on machine 9,500
Selling and administrative expenses 44,000 (119,500 )
Income before taxes $ 12,500
Income tax (30%) (3,750 )
Net income $ 8,750

  • 6.00 years.

  • 6.51 years.

  • 3.12 years.

  • 1.88 year.

  • 13.03 years.

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