Aston Advertising is considering the purchase of a special purpose machine for $22 000. It is expected to have a useful life of ten years with no salvage value. The firm's accountant estimates savings in cash operating costs of $5000 per year. Compute the pay-back period.

Question

Quizplus · Accepted Answer

The payback period is the time that a project takes to recoup its initial cost. In this case, the initial cost is $22,000, and the annual savings are $5,000. To find the payback period, we need to divide the initial cost by the annual savings:

$22,000 ÷ $5,000 = 4.4 years

Therefore, the payback period is 4.4 years. The best choice is B, as it has the shortest payback period.

Aston Advertising Is Considering the Purchase of a Special Purpose