A company is considering purchasing a machine for $35,400. The machine will generate income of $4,000 per year. Annual depreciation expense would be $3,000. What is the payback period for the new machine?

 A company is considering purchasing a machine for $35,400. The machine will generate income of $4,000 per year. Annual depreciation expense would be $3,000. What is the payback period for the new machine?

Multiple Choice

8.8 years.


35.4 years.


5.1 years. Correct

11.8 years.


3.1 years.

Explanation
Payback period = $35,400/($4,000 + $3,000) per year = 5.1 years