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) 6.7 years
C) 6 years
D) 5.33 years