A Company with $500,000 in Operating Assets Is Considering the Purchase

question 365

Multiple Choice

A company with $500,000 in operating assets is considering the purchase of a machine that costs $60,000 and which is expected to reduce operating costs by $15,000 each year. These reductions in cost occur evenly throughout the year. The payback period for this machine in years is closest to (Ignore income taxes.) :

• A) 0.25 years
• B) 8.3 years
• C) 4 years
• D) 33.3 years

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Definitions:

Forward Contracts

Customizable financial contracts traded over-the-counter between two parties to buy or sell an asset at a specified future date for a price agreed upon today.

Economic Conditions

The state of an economy at a given time, encompassing factors like inflation, unemployment, and GDP growth.

Government Policies

Rules, regulations, and actions taken by a government to govern its citizens and manage its economic, social, and administrative affairs.

Nonconvertible Currency

A currency that cannot be freely exchanged for other currencies on the foreign exchange market due to foreign exchange controls.