Beauchamp Advertising is considering the purchase of a special purpose machine for $56 000. It is expected to have a useful life of 7 years with no salvage value. The firm's accountant estimates savings in cash operating costs of $9 800 per year. Calculate the pay-back period.

Question

Quizplus · Accepted Answer

Pay-back period = initial cost of investment/annual cash savings
Pay-back period = 56,000/9,800
Pay-back period = 5.7 years
Therefore, the best choice is C, as it has the shortest pay-back period.

Beauchamp Advertising Is Considering the Purchase of a Special Purpose