Alberto Company is considering the purchase of a new machine for $110,000. The machine generates annual revenues of $68,750 and annual expenses of $41,250, which includes $8,250 of depreciation. What is the payback period in years on the machine approximated to one decimal point?

Question

Quizplus · Accepted Answer

The payback period is calculated by dividing the initial investment by the annual net cash inflow. The net cash inflow is the annual revenues minus the annual expenses excluding depreciation. So, $68,750 - ($41,250 - $8,250) = $35,750. The payback period is $110,000 / $35,750 = 3.1 years.

Alberto Company Is Considering the Purchase of a New Machine