The Cost of a New Machine Is $250,000

question 56

Multiple Choice

The cost of a new machine is $250,000. The machine has a 3-year life and no salvage value. If the cash flow each year is equal to 40% of the cost of the machine, calculate the payback period for the project:

• A) 2 years
• B) 2.5 years
• C) 3 years
• D) Cannot be determined because of insufficient data

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Definitions:

Treasury Stock

Shares of a company's own stock that it has reacquired and held in its treasury.

Cumulative

Referring to the total amount accumulated over time, often used to describe interest, dividends, or other quantities that increase over periods.

Preferred Stock

Preferred stock is a type of stock that gives its holders priority over common stockholders in terms of dividend payouts and claims on assets in the event of a liquidation.

Treasury Stock

Refers to shares that were once part of the outstanding shares but were bought back by the company. Now, these shares are held in the company's treasury.