Check out some similar questions!

pookienookie · Dec 11, 2011, 10:40 PM

Hi, I am working on a project and I am confused about how to complete my project. The following is an example similar to my project which provides me with a solution manual. I am trying to figure out the calculation of the Payback period.

Cost of new equipment $200,000
Expected life of equipment in years 5
Disposal value in 5 years $40,000
Life production - number of cans 10,000,000
Annual production or purchase needs 1,000,000
Initial training costs 10,000
Number of workers needed 3
Annual hours to be worked per employee 2300
Earnings per hour for employees $8.50
Annual health benefits per employee $1,500
Other annual benefits per employee-% of wages 18%
Cost of raw materials per can $0.20
Other variable production costs per can $0.10
Costs to purchase cans - per can $0.50
Required rate of return 10%
Tax rate 35%

They have a tax savings due to depreciation rate of $32000 I am not sure how to find this number

ArcSine · Dec 12, 2011, 07:41 AM

The "tax savings due to depreciation" doesn't seem to square with the 32,000 figure, but assuming straight-line depreciation, the annual depreciation write-off would be

(200K - 40K / 5 = 32,000.