Ignore income taxes in this problem A company with 600000 in

(Ignore income taxes in this problem.) A company with $600,000 in operating assets is considering the purchase of a machine that costs $72,000 and which is expected to reduce operating costs by $18,000 each year. These reductions in cost occur evenly throughout the year. How long is the payback period for this machine closest to, in years?

Solution

Answer : A. 4 years

=> Pay-back period = Purchase value of asset / cost saving per year = $72000 / $18000 per year = 4 years