Vander Company is considering purchasing a machine that would cost $544,640 and have a useful life of 9 years. The machine would reduce cash operating costs by $85,100 per year. The machine would have a salvage value of $107,140 at the end of the project.
Compute the payback period for the machine.
Using the payback technique, one can determine an investment's time to recover its initial cost. The payback period suggests that an investment should not be taken up if it takes long years to cover its cost.
Answer and Explanation: 1
The payback period for the machine is 6.40 years.
The following formula helps determine the payback period:
- Payback period = Initial investment...
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fromChapter 5 / Lesson 24
Learn 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.