A company is considering the purchase of a new machine for $48,000. Management predicts that the machine can produce sales of $16,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $12,000 per year including depreciation of $3,000 per year. Income tax expense is $1,600 per year based on a tax rate of 40%. What is the payback period for the new machine?
A. 8.9 years.
B. 7.5 years.
C. 20.0 years.
D. 6.0 years.
E. 12.0 years.
Answer: A
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