A Company Is Considering the Purchase of a New Machine

question 112

Multiple Choice

A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?

• A) 3.0 years.
• B) 6.0 years.
• C) 7.5 years.
• D) 12.0 years.
• E) 20.0 years.

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Definitions:

Hotel Industry

A sector of the hospitality industry focusing on providing accommodation, meals, and other services for travelers and tourists.

Manufacturing Process

A sequence of operations that transforms raw materials or components into finished goods.

Operating Results

The outcome of a company's main business activities, including profit or loss, before considering the effects of non-operational income and expenses.

Factory Overhead

Factory overhead includes indirect costs incurred during the manufacturing process, such as utilities, depreciation, and salaries for supervisors that cannot be directly traced to specific units of production.