A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage

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A company is considering purchasing factory equipment that costs $480,000 and is estimated to have no salvage value at the end of its 8-year useful life. If the equipment is purchased, annual revenues are expected to be $135,000 and annual operating expenses exclusive of depreciation expense are expected to be $39,000. The straight-line method of depreciation would be used.
The cash payback period on the equipment is
a. 5.0 years.
b. 13.3 years.
c. 8.0 years.
d. 2.5 years.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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Accounting

ISBN: 978-0324188004

21st Edition

Authors: Carl s. warren, James m. reeve, Philip e. fess

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