(Ignore income taxes in this problem.) A company with $885,000 in operating asse
ID: 2485394 • Letter: #
Question
(Ignore income taxes in this problem.) A company with $885,000 in operating assets is considering the purchase of a machine that costs $91,000 and which is expected to reduce operating costs by $23,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to:
A. 38.5 years
B. 9.7
C. 0.25
D. 4
(Ignore income taxes in this problem.) A company with $885,000 in operating assets is considering the purchase of a machine that costs $91,000 and which is expected to reduce operating costs by $23,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to:
A. 38.5 years
B. 9.7
C. 0.25
D. 4
Explanation / Answer
Answer:
Initial Outflow for the new machine = $ 91,000
Annual Saving in operating costs due to purchase of new machine = $ 23,000
therefore, payback period for the new machine shall be closest to 4 years ($ 23,000 x 4 = $ 92,000).
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