A company is planning to purchase a machine that will cost $24,000,have a 6-year life,and have no salvage value.The company expects to sell the machine's output of 3,000 units evenly throughout each year.Total income over the life of the machine is estimated to be $12,000.The machine will generate net cash flows per year of $6,000.The payback period for the machine is 4 years.

Question

Quizplus · Accepted Answer

The payback period is the amount of time it takes for the initial investment to be recovered through the net cash inflows generated by the investment. In this case, the machine costs $24,000 and generates $6,000 in net cash inflows per year, so the payback period would be 4 years (24,000/6,000 = 4). Therefore, the statement is true.

A Company Is Planning to Purchase a Machine That Will