A company is considering purchasing a machine for $21,000. The machine will generate income from operations of $2,000; annual net cash flows from the machine will be $3,500. The payback period for the new machine is 6 years. a. Trueb. False

True

Explanation:

Data provided in the question:

Purchasing cost of the machine = $21,000

Income generated = $2,000

Annual net cash flows from the machine = $3,500

Now,

The Payback period = [ Purchasing cost ] : [ Annual net cash flows ]

or

Payback period = $21,000 : $3,500

or

Payback period = 6 years

Since,

the calculated payback period and the mentioned payback period in the question are equal

Hence,

the given statement is true