Sullivan Company Is Considering the Purchase of a New Machine

Multiple Choice

Sullivan Company is considering the purchase of a new machine costing $80 000. Sullivan's management is estimating that the new machine will generate additional cash flows of $12 000 a year for ten years and have a salvage value of $3 000 at the end of ten years. What is the machine's payback period?

A) 7 years
B) 5.33 years
C) 6 years
D) 6.7 years