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5 cards from this section. Quick, good the night before a test.
What is the payback period?
Think about recovering your initial expenditure.
Define economic life.
Consider how long a machine effectively serves its purpose.
What is the payback period?
It focuses on cash flow recovery.
True or False: The economic life of equipment is the time during which it is cost-effective to use.
Think about how long machines remain beneficial.
A factory has two machines: Machine A costs 60 lakh and earns 12 lakh per year; Machine B costs 48 lakh but earns 14 lakh for the first 4 years and drops to 6 lakh after that. Calculate the payback period for both machines and suggest which to select.
Calculate each machine's cumulative profits yearly to see when they reach the initial investment.
Evaluate a scenario where a company has to choose between retaining an older machine that costs 40 lakh with expected annual profits of 8 lakh and a new machine at 50 lakh with 9 lakh for 5 years. Determine if changing the machine is justified.
Focus on potential efficiency gains from the new machine.
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