Compute the payback period for each of these two separate investments (round the payback period to two

Question:

Compute the payback period for each of these two separate investments (round the payback period to two decimals):

a. A new operating system for an existing machine is expected to cost $250,000 and have a useful life of four years. The system yields an incremental after-tax income of $72,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.

b. A machine costs $180,000, has a $12,000 salvage value, is expected to last eight years, and will generate an after-tax income of $39,000 per year after straight-line depreciation.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...