Question

A company with $600,000 in operating assets is considering purchasing a thing that costs $72,000 and which is expected to reduce operating costs by $18,000 each year. The payback period for this machine is closest to:

1) 8.3 years
2) 4 years
3) 33.3 years
4) 0.25 years

Answer 1

The payback period for the machine is approximately 4 years.

Step-by-step explanation:

To calculate the payback period, we need to divide the cost of the machine by the annual savings it provides. In this case, the cost of the machine is $72,000 and the annual savings is $18,000. Therefore, the payback period is calculated as:

Payback Period = Cost of Machine / Annual Savings
Payback Period = $72,000 / $18,000
Payback Period = 4 years

The payback period for the machine is approximately 4 years, so the closest option is 2) 4 years.