Question

A company is considering purchasing a machine that costs $400,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the machine is purchased, annual revenues are expected to be $100,000 and annual operating expenses exclusive of depreciation expense are expected to be $38,000. The straight-line method of depreciation would be used. The cash payback period on the machine is Question 9 options: 8.0 years. 7.5 years. 6.5 years. 3.2 years

Answer 1

6.5 years

Step-by-step explanation:

Cost of Asset/Net Income = $400,000/Net Income

Net Income = Revenue - Operating expenses (excluding depreciation)

= $100,000 - $38,000 = $62,000

=$400,000/$62,000

=6.45

=6.5 years