Westonci.ca is the premier destination for reliable answers to your questions, provided by a community of experts. Discover comprehensive solutions to your questions from a wide network of experts on our user-friendly platform. Connect with a community of professionals ready to provide precise solutions to your questions quickly and accurately.

A company is considering the purchase of a new machine for $48,000. Management expects that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year. All revenues and expenses except depreciation are on a cash basis. The payback period for the machine is 12 years. True False

Sagot :

Answer:

False

Explanation:

Annual cash inflow = Sales revenue - Cash expenses

Annual cash inflow = $16,000 - $8,000

Annual cash inflow = $8,000

Cost of machine = $48,000

Payback period = Cost of machine/Annual cash inflows

Payback period = $48,000/$8,000

Payback period = 6 years

So, the payback period for the machine is 6 years.

We appreciate your time. Please come back anytime for the latest information and answers to your questions. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.