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:

Outstanding Shares

A corporation’s shares currently held by shareholders.

Articles of Incorporation

A paper submitted to the state authorities to formally set up a corporation.

Authorized Shares

The maximum number of shares that a corporation is legally permitted to issue, as specified in its charter.

Annual Dividend

The total dividend payment a company declares to distribute to its shareholders annually, often derived from the company's profits.