Aaron Co. is considering purchasing a new machine which will cost $200,000, but which will decrease costs each year by $40,000. 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 cash payback period is
A) 4.0 years.
B) 4.5 years.
C) 5.0 years.
D) 10.0 years.

Question

Quizplus · Accepted Answer

The cash payback period is calculated by dividing the initial investment by the annual cash savings. Here, the initial investment is $200,000 and the annual cash savings is $40,000. Therefore, the cash payback period is $200,000 / $40,000 = 5.0 years.

Aaron Co Is Considering Purchasing a New Machine Which Will Cost