Doris Co.is considering purchasing a new machine which will cost $200,000, but which will decrease costs each year by $50,000.The useful life of the machine is 10 years.The machine would be depreciated straight-line with no residual value over its useful life at the rate of $20,000/year.The payback period is

Question

Quizplus · Accepted Answer

The payback period is the number of years it takes for the cumulative cash inflows to equal the initial investment. In this case, the initial investment is $200,000 and the annual cash inflows are $50,000. Therefore, the payback period is 200,000/50,000 = 4 years.

Doris CoIs Considering Purchasing a New Machine Which Will Cost $200,000