Question

A company with $660,000 in operating assets is considering the purchase of a machine that costs $76,000 and which is expected to reduce operating costs by $22,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ignore income taxes.): (Round your answer to 1 decimal place.)

Multiple Choice

3.5 years

8.7 years

0.29 years

30 years

Answer 1

Answer -

Step - (1) - Information Given -

A company with $660000 in operating assets is considering the purchase of a machine that costs $76000 and which is expected to reduce operating costs by $22000 each year. These reductions in cost occur evenly throughout the year.

.

Step - (2) - Calculation of Payback period -

= Cost of machine / Reduction in operating costs each year

= $76000 / $22000

= 3.5 years [Rounded off].

Therefore, The payback period for this machine in years is closest to 3.5 years.

Hence, Option - (A) is Correct.