Using the Information in the Table Below, When Will Payback

question 24

Multiple Choice

Using the information in the table below, when will payback occur? To justify the purchase of a new release of information tracking system, Health Information Management Services (HIMS) wants to calculate the new system's payback period. The cost to operate the current system is $25,000 per year. The proposed cost of the new system for the first year is $35,000 with continuing operation costs per year of $15,000. An increase of $10,000 per year in billing is anticipated with the new system because of the addition of a billing component to the release of information tracking functionality. Data are summarized in the following table:
$$\begin{array} { | l | c | c | c | c | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } \\\hline \text { Curent systern cost } & \$ 25,000 & \$ 25,000 & \$ 25,000 & \$ 25,000 \\\hline \text { New 5ystern cost } & \$ 35,000 & \$ 15,000 & \$ 15,000 & \$ 15,000 \\\hline \text { Yearly difference in cost } & - \$ 10,000 & + \$ 10,000 & + \$ 10,000 & + \$ 10,000 \\\hline \begin{array} { l } \text { Curmulative differences } \\\text { in costs }\end{array} & & & & \\\hline\end{array}$$

• A) First year
• B) Second year
• C) Third year
• D) Fourth year

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Definitions:

Financial Balances

Financial balances refer to the comparison and calculation of financial resources, often focusing on the discrepancies between income and expenses or assets and liabilities.

Consolidated Expenses

Expenses that are combined from all subsidiaries and the parent company when preparing consolidated financial statements, providing a holistic view of the entity's operational cost.

Common Stock

A type of equity ownership in a corporation, with voting rights and potential for dividends, representing a share in the company's profits and losses.

Additional Paid-in Capital

Additional Paid-in Capital is the amount of money paid by investors for shares in a company above the par value of those shares. It represents extra equity capital invested in the company.