A hydraulic machine is being planned for acquisition at a cost of $5,000. During its useful life of 7 years, it is expected to generate an annual gross income of $3,400. The cost of space to house the machine and of the utilities is $900 per year. Its maintenance cost is projected to be $300 per

Question

A hydraulic machine is being planned for acquisition at a cost of $5,000. During its useful life of 7 years, it is expected to generate an annual gross income of $3,400. The cost of space to house the machine and of the utilities is $900 per year. Its maintenance cost is projected to be $300 per year. Determine the payback period for the machine.

Accepted Answer

Here, the first cost (or investment) is $5,000. The recurring expenditure comprises the space and utility cost of $900 and the maintenance cost of $300, both per year. Thus, the total cost in utilizing the machine is $900 + $300 = $1,200 per year. The net income from investment in the machine is obtained by subtracting this total cost from the gross income. This yields a net income of $3,400 – $1,200 = $2,200 per year. Therefore,

Payback period

[latex]=\frac{\$5000}{\$2,200 per year } [/latex]

= 2.27 years .

Question 5.1: A hydraulic machine is being planned for acquisition at a co...

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