Solutions Inc

question 66

Multiple Choice

Solutions Inc.would like to purchase a new production machine for $300,000.The machine is expected to have a life of four years,and a salvage value of $50,000.Annual maintenance costs will total $30,000.Annual labor and material savings are predicted to be $150,000.The company's required rate of return is 6 percent.
What is the payback period for this investment (round to the nearest month) ?

• A)3 year,5 months.
• B)2 years,5 months.
• C)2 years,6 months.
• D)3 years,6 months.
• E)None of the answer choices is correct.

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Definitions:

Total Debt Service Ratio

A debt measurement ratio that calculates an individual's total debt payments relative to their gross income.

Gross Monthly Income

The total amount of income earned in a month before any deductions or taxes are applied.

Compounded Monthly

The method of computing interest that includes both the original amount of money deposited or loaned and the interest that amount has earned in past months.

Amortized

The process of spreading payments over multiple periods, typically in context of a loan or mortgage, which includes both interest and principal components.