Vandezande inc. is considering the acquisition of a new machine that costs $467,000 and has a useful life of 5 years with no salvage value. the incremental net operating income and incremental net cash flows that would be produced by the machine are (ignore income taxes.): incremental net operating income incremental net cash flows year 1 $ 75,000 $ 152,000 year 2 $ 81,000 $ 160,000 year 3 $ 92,000 $ 175,000 year 4 $ 55,000 $ 157,000 year 5 $ 97,000 $ 159,000 assume cash flows occur uniformly throughout a year except for the initial investment. the payback period of this investment is closest to:

payback 2.8857 years

Explanation:

The payback period is the time in years at which the project recovers their original cost:

the investment is for 467,000

we will add the cash flow of the project until this value

Year 1  :    152,000

Year 2 :    160,000   accumulated 312,000

Year 3 :    175,000   accumulated 487,000

During third year the company achieved payment.

We will calculate at which point of the third year we accumulate 467,000 cash flow assuming a linear earninig during the year

467,000 - 312,000 = 155,000

175,000 for a complete year

155,000 X

155,000/175,000 = 0.8857

2 complete years + 0.8857 of the third year:

2.8857 payback period

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