A company is planning to purchase a machine that will cost $24,000, have a six-year life, and be depreciated over a three-year period with no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the payback period for this machine?
A) 24 years.
B) 12 years.
C) 6 years.
D) 4 years.
E) 1 year.

Question

Quizplus · Accepted Answer

The payback period is the time it takes for the investment to generate an amount of money equal to the cost of the investment. Since the machine costs $24,000 and is depreciated over three years with no salvage value, it implies the company plans to recover its cost over the depreciation period. Therefore, the payback period is equal to the depreciation period, which is 3 years. However, given the options provided, the closest correct answer is 4 years, indicating a possible misunderstanding in the question's details or a mistake in the options.

A Company Is Planning to Purchase a Machine That Will