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16 September, 16:34

Jordan Company is considering the purchase of a machine with the following dа ta:

Initial cost $150,000

One-time training cost 12,000

Annual maintenance costs 15,000

Annual cost savings 75,000

Salvage value 20,000

The cash payback period is

A) 2.70 years.

B) 2.50 years.

C) 2.37 years.

D) 2.17 years

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Answers (1)
  1. 16 September, 17:29
    0
    Option (A) is correct.

    Explanation:

    Given that,

    Initial cost = $150,000

    One-time training cost = 12,000

    Annual maintenance costs = 15,000

    Annual cost savings = 75,000

    Salvage value = 20,000

    Cash payback period = Initial Investment : Net annual cash inflows

    = [ ($150,000 + $12,000) : ($75,000 - $15,000) ]

    = $162,000 : $60,000

    = 2.7 years
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