A Company Is Considering Purchasing a Machine That Costs $400,000

question 131

Multiple Choice

A company is considering purchasing a machine that costs $400,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. The cash payback period on the machine is

• A) 8.0 years.
• B) 7.5 years.
• C) 6.5 years.
• D) 3.2 years.

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Definitions:

Unemployment Insurance

A government-provided financial assistance program for individuals who have lost their jobs, offering temporary income support while they seek new employment.

Unemployed

Individuals who are without a job but are actively looking for work and available to start work.

Endogenous

Originating from within a system, referring to factors or variables in economic models that are determined by the dynamics within the model itself, as opposed to external influences.

Business Cycle

The natural rise and fall of economic growth that occurs over time, including periods of expansion, peak, recession, and recovery.