A Company Is Considering the Purchase of a New Machine

question 60

Multiple Choice

A company is considering the purchase of a new machine for $48,000.Management predicts that the machine can produce sales of $16,000 each year for the next 10 years.Expenses are expected to include direct materials,direct labor,and factory overhead totaling $12,000 per year including depreciation of $3,000 per year.Income tax expense is $1,600 per year based on a tax rate of 40%.What is the payback period for the new machine?

• A)20.0 years.
• B)6.0 years.
• C)7.5 years.
• D)12.0 years.
• E)8.9 years.

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Definitions:

Initial Purchase

The first acquisition of goods or assets for the purpose of business operations or investment.

F.O.B.

F.O.B. (Free on Board) is a shipping term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.

Free On Board

A shipping term indicating that the seller bears transportation costs to the shipping point, after which the buyer is responsible.

Freight Order Billing

The process of issuing invoices for the transportation services provided for shipping goods, based on agreed terms such as weight, distance, and type of goods.