Question & Answer: A company with $600,000 in operating assets is considering the purchase of a machine that costs $72,000 and which is expected to redu…..

MC Qu. 39 (gnore income taxes in this problem.) A company... 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. The payback period for this machine in years is closest to: O 4 years 8.3 years O 0.25 years O 333 years

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. The payback period for this machine in years is closest to: 4 years 8.3 years 0.25 years 33.3 years

Expert Answe

The correct answer is 4 Years

Note :

1. Payback Period = Initial Investment / Annual Cash Inflows

= $ 72,000/ $ 18,000

=4 Years

2. Annual Cash Inflows in this case is the reduction in the operating costs per year.

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