A Company Is Considering Investing $57,000 in a Machine That

question 17

Multiple Choice

A company is considering investing $57,000 in a machine that will last for five years, after which time it will have no value. The machine will generate additional revenue of $190,000 each year. Annual running costs, including depreciation of $11,400 will amount to $168,400. Assuming that all cash flows occur evenly, the payback period of the investment in the machine is closest to:

• A) 2 years 8 months
• B) 1 year 9 months
• C) 1 year 7 months
• D) 2 years 6 months

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Definitions:

Cash Payment

A transaction in which a payment is made using physical currency or through a digital cash transfer rather than credit.

Deferred Tax Asset

An asset on a company's balance sheet that may be used to reduce future tax liability; it arises when a company has overpaid taxes or paid them in advance.

Wages Expense

An accounting term that refers to the total cost incurred by a company to pay its employees, recognized in the period employees perform the work.

Book Purposes

Refers to accounting methods and practices used to prepare financial statements for regulatory reporting, as opposed to tax calculations.