Due to increased demand, the management of Rani Company is considering purchasing a new computer system to decrease operating cost and sell new products. The useful life of the software is 10 years. The inflow and outflow of cash associated with the new software is given below: Initial cost of software: $37,500 Annual cash inflows: Sales: $75,000 resulting from new software Annual cash Outflows: Yearly operating costs: $45,000 Yearly salaries expenses: $19,125 Yearly maintenance expenses: $1,500 Deferred income taxes: $50O Software amortization expense: $5,000 Required: What is the project's payback period?

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
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Due to increased demand, the management of Rani Company is considering purchasing a new
computer system to decrease operating cost and sell new products. The useful life of the software is
10 years. The inflow and outflow of cash associated with the new software is given below:
Initial cost of software: $37,500
Annual cash inflows:
Sales: $75,000 resulting from new software
Annual cash Outflows:
Yearly operating costs: $45,000
Yearly salaries expenses: $19,125
Yearly maintenance expenses: $1,500
Deferred income taxes: $500
Software amortization expense: $5,000
Required: What is the project's payback period?
Transcribed Image Text:Due to increased demand, the management of Rani Company is considering purchasing a new computer system to decrease operating cost and sell new products. The useful life of the software is 10 years. The inflow and outflow of cash associated with the new software is given below: Initial cost of software: $37,500 Annual cash inflows: Sales: $75,000 resulting from new software Annual cash Outflows: Yearly operating costs: $45,000 Yearly salaries expenses: $19,125 Yearly maintenance expenses: $1,500 Deferred income taxes: $500 Software amortization expense: $5,000 Required: What is the project's payback period?
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