A company is considering purchasing a machine for $21,000. The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500. The payback period for the new machine is 10.5 years.

Question

Quizplus · Accepted Answer

The payback period can be calculated by dividing the initial cost by the net annual cash flows:

Payback period = $21,000 / $3,500 = 6 years

Since the payback period is shorter than the stated 10.5 years, the statement is false.

A Company Is Considering Purchasing a Machine for $21,000