Abc steel co. is considering buying a new machine in order to increase its production capacity using new technology. details about the new equipment are below: purchase cost $300,000 savings offered by the new machine $62,500 per year life of the new machine 15 years the corporate policy of abc steel co. is to reject all proposal with a payback period of more than 7 years. therefore, would abc buy the new machine?

a. 7.2 years
b. 6.8 years
c. 4.8 years
d. 12.4 years

payback period is lesser than 15 years we can say that they should buy the machine

so correct option is c. 4.8 years  

Explanation:

given data

Purchase Cost = $300,000

Savings offered = $62,500 per year

Life of machine = 15 years

to find out

Payback period

solution

first we get here Payback period that is express as

Payback period =  purchase cost ÷ savings   ...........1

put here value we get

Payback period =

Payback period = 4.8 years

and here payback period is lesser than 15 years we can say that they should buy the machine

so correct option is c. 4.8 years  

explanation:

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