# A company is considering purchasing a machine for $21,500. The machine will generate an after-tax...

## Question:

A company is considering purchasing a machine for $21,500. The machine will generate an after-tax net income of $2,750 per year. The annual depreciation expense would be $2,250. What is the payback period for the new machine?

## Payback Period:

The payback period is a capital budgeting technique that evaluates two or more investment alternatives by considering the annual cash inflows from the investment made. The number of years that a company takes in recovering its initial cash outlay from the cash flows generated by the investment is called the payback period and it doesn't consider the time value of money.

## Answer and Explanation: 1

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**The payback period for the new machine is 4.3 years.**

Explanation:

As per the data:

- Investment cost of machine = $21,500
- Annual after-tax...

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Chapter 5 / Lesson 24Learn the meaning and purpose of the payback period method. Learn how to calculate the payback period, and understand the advantages and limitations of using this method.

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