Question

Oriole Company is considering the purchase of a machine with an estimated useful life of 5 years with the following data:

Initial cost $230000
One-time training cost $32800
Annual maintenance costs $23000
Annual cost savings $115000
Salvage value $29900

What is the cash payback period?

Answer 1

The cash payback period for Oriole Company's machine purchase is 2 years.

Step-by-step explanation:

The cash payback period is the length of time it takes for an investment to recover its initial cost through cash savings. To calculate the cash payback period, you need to determine how many years it takes for the cumulative cash inflows to equal or exceed the initial investment. In this case, the initial cost is $230,000 and the annual cost savings is $115,000, so the payback period can be found by dividing the initial cost by the annual savings:

Payback Period = Initial Cost / Annual Cost Savings

Payback Period = $230,000 / $115,000

Payback Period = 2 years

Therefore, the cash payback period for Oriole Company's machine purchase is 2 years.