A company is considering purchasing a machine for $21,000. The machine will generate income from operations of $2,000; annual 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 is calculated by dividing the initial investment by the annual cash flows. In this case, $21,000 / $3,500 = 6 years, not 10.5 years.

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