ABC Steel Co. is considering buying a new machine in order to increase its produ
ID: 2597795 • Letter: A
Question
ABC Steel Co. is considering buying a new machine in order to increase its production capacity using new technology. Details about the new equipment are below:
Purchase Cost $300,000
Savings offered by the new machine $62,500 per year
Life of the new machine 15 years
.-The corporate policy of ABC Steel Co. is to reject all proposal with a payback period of more than 7 years. Therefore, would ABC buy the new machine?
Explanation / Answer
Payback period = 300000/62500= 4.8 years As the payback period is less than 7 years, ABC should buy the new machine