(Ignore income taxes in this problem.) A company with $600,000 in operating asse

Question

(Ignore income taxes in this problem.) A company with $600,000 in operating assets is considering the purchase of a machine that costs $72,000 and which is expected to reduce operating costs by $18,000 each year. These reductions in cost occur evenly throughout the year. How long is the payback period for this machine closest to, in years?

(Ignore income taxes in this problem.) A company with $600,000 in operating assets is considering the purchase of a machine that costs $72,000 and which is expected to reduce operating costs by $18,000 each year. These reductions in cost occur evenly throughout the year. How long is the payback period for this machine closest to, in years?

Explanation / Answer

Answer : A. 4 years

=> Pay-back period = Purchase value of asset / cost saving per year = $72000 / $18000 per year = 4 years

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