Sullivan Company Is Considering the Purchase of a New Machine

question 30

Multiple Choice

Sullivan Company is considering the purchase of a new machine costing $80 000. Sullivan's management is estimating that the new machine will generate additional cash flows of $12 000 a year for ten years and have a salvage value of $3 000 at the end of ten years. What is the machine's payback period?

• A)7 years
• B)5.33 years
• C)6 years
• D)6.7 years

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Definitions:

Profitable

Being profitable means that a company or business generates more revenue than the costs involved in its operation, resulting in a positive financial gain.

Friendly Merger

A merger agreed upon by all parties involved, where the companies willingly combine due to perceived mutual benefits.

Hostile Merger

A takeover attempt that is made against the wishes of the target company's management and board of directors.

Merger Negotiations

Discussions and strategic planning between two or more companies with the goal of combining their operations, typically to achieve synergies.