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Heidi Company is considering the acquisition of a machine that costs $403,000. The machine is expected...

Heidi Company is considering the acquisition of a machine that costs $403,000. The machine is expected to have a useful life of 6 years, a negligible residual value, an annual net cash inflow of $130,000, and annual operating income of $83,525. The estimated cash payback period for the machine is (round to one decimal point)?

a.4.0 years

b.4.8 years

c.3.1 years

d.5.5 years

please explain

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Answer #1

Solution: 3.1 years

Explanation: Here we have, Initial cost = $403,000; Annual cash inflows = $130,000

Payback period = Initial investment / Net annual cash inflows

Payback period = 403,000 / 130,000 = 3.1 years

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