Jordan Company is considering the purchase of a machine with the following data: $$\begin{array} { l r }
\text { Initial cost } & \$ 150,000 \
\text { One-time training cost } & 12,000 \
\text { Annual maintenance costs } & 15,000 \
\text { Annual cost savings } & 75,000 \
\text { Salvage value } & 20,000
\end{array}$$ The cash payback period is
A)2.70 years.
B)2.50 years.
C)2.37 years.
D)2.17 years.

Question

Jordan Company is considering the purchase of a machine with the following data: $$\begin{array} { l r } 
\text { Initial cost } & \$ 150,000 \
\text { One-time training cost } & 12,000 \
\text { Annual maintenance costs } & 15,000 \
\text { Annual cost savings } & 75,000 \
\text { Salvage value } & 20,000
\end{array}$$ The cash payback period is
A)2.70 years.
B)2.50 years.
C)2.37 years.
D)2.17 years.

Quizplus · Accepted Answer

The cash payback period is the number of years it takes for the initial investment to be recovered from the annual cost savings. In this case, the initial investment is $150,000 + $12,000 = $162,000. The annual cost savings is $75,000. Therefore, the cash payback period is $162,000 / $75,000 = 2.16 years.

Jordan Company Is Considering the Purchase of a Machine with the Following