Valeria Products is considering the purchase of a new machine costing $500,000. The machine is expected to reduce annual operating costs by $90,000 and will be depreciated using the straight-line method (with no half-year convention) over ten years with no salvage value at the end of its useful life. Assuming a 40 percent income tax rate, the machine's payback period is:
A. 5.56 years.
B. 6.76 years
C. 9.26 years.
D. 3.57 years.
Step 1: To calculate the Annual cash flows
Annual cash flows= Post tax savings of Annual ...
Solution helps in discussing Annual cash flows and payback period.