# Aljero corporation is considering purchasing a machine that would cost $243,600 and have a useful...

## Question:

Aljero corporation is considering purchasing a machine that would cost {eq}\$243,600 {/eq} and have a useful life of 8 years. The machine would reduce cash operating costs by {eq}\$76,125 {/eq} per year. The machine would have a salvage value of {eq}\$60,900 {/eq} at the end of the project.

Calculate the payback period for the machine.

## Payback Period:

The payback period is the amount of time a project can take to recover its initial investment. Project is accepted whose payback period is lower. It is when the project reaches its break-even point.

## Answer and Explanation: 1

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View this answerCalculation of payback period:

Particulars | Amount |

Initial investment (A) | $243,600 |

Annual cash flow (B) | $76,125 |

Payback period (A/B) | 3.2 |

Hence, the...

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Chapter 3 / Lesson 4Cost-benefit analysis models take into account payback (time period to cover costs) and accounting rate of return (annual revenue generated). See how these two concepts are considered for investment decisions.

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