A Machine That Costs $180,000 Is Expected to Generate $40,000

question 106

Multiple Choice

A machine that costs $180,000 is expected to generate $40,000 in cost savings annually for five years.The terminal value at the end of five years is $10,000.Assume straight-line depreciation is used.Ignore income taxes.What is the payback period?

• A) 3.00 years
• B) 4.00 years
• C) 4.20 years
• D) 4.50 years

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Definitions:

Par Value

The face value of a bond or stock, as stated by the issuing company, which might not reflect its market value.

Callable

A feature of a financial instrument that allows the issuer to repurchase or redeem the instrument before its maturity date.

Yield To Call

The total return anticipated on a bond if it is held until the date it is called by the issuer, including interest payments and the call price.

Call Price

The price at which a bond or other financial security can be repurchased by the issuer before its maturity date, as specified in the callable feature.