Purvell Company Has Just Acquired a New Machine The Company Uses Straight-Line Depreciation and A

question 118

Multiple Choice

Purvell Company has just acquired a new machine. Data on the machine follow:
$\begin{array}{|r|r|}\hline \text { Purchase Cost } & \$ 50,000 \\\hline \text { Annual cost savings } & \$ 15,000 \\\hline \text { Life of the Machine } & 8 \text { years } \\\hline\end{array}$
The company uses straight-line depreciation and a $\$ 5,000$ salvage value. (The company considers salvage value in making depreciation deductions.) Assume cash flows occur uniformly throughout a year. (Ignore income taxes in this problem.)
-The payback period would be closest to which of the following?

• A) 2.90 years.
• B) 3.00 years.
• C) 3.33 years.
• D) 8.00 years.

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