Use the Information Below to Answer the Following Question(s)

question 117

Multiple Choice

Use the information below to answer the following question(s) .Jupiter Ltd.wants to automate one of its production processes.The new equipment will cost $90,000.In addition, Jupiter will incur installation and testing costs of $5,000 and $4,500 respectively.The expected life of the equipment is 5 years and the salvage value of the equipment is estimated at $12,000.The annual cash savings are estimated at $29,000.The company uses straight-line depreciation and has a required rate of return of 9%.Ignore income taxes.
-What is the payback period for the investment Jupiter Ltd.is considering?

• A)3.43 years
• B)3.10 years
• C)5.0 years
• D)3.02 years
• E)The project does not payback.

---

Definitions:

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Natural Monopoly

A market condition where a single firm can supply a good or service to an entire market more efficiently than if there were multiple suppliers, due to high fixed or startup costs.

Investor Owned

Pertains to a business or entity that is privately owned by investors who seek to earn profits from the operation.

Barriers to Entry

Barriers that make it difficult for new entrants to join a market due to financial, legal, or procedural hurdles.