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 6 years.

Question

Quizplus · Accepted Answer

To calculate the payback period, we divide the initial investment by the annual net cash flows:

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

Since the payback period is exactly 6 years, the statement is true.

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