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19 February, 21:22

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

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Answers (1)
  1. 20 February, 00:17
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    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
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