Asked by
Tracy Hower
on Dec 17, 2024Verified
Buy-Rite Pharmacy has purchased a small auto for delivering prescriptions. The auto was purchased for $24,000 and will have a 6-year useful life and a $6,000 salvage value. Delivering prescriptions (which the pharmacy has never done before) should increase gross revenues by at least $28,000 per year. The cost of these prescriptions to the pharmacy will be about $22,000 per year. The pharmacy depreciates all assets using the straight-line method. The payback period for the auto is closest to (Ignore income taxes.) :
A) 2 years
B) 1.8 years
C) 4 years
D) 1.2 years
Payback Period
The duration necessary to regain the investment's cost.
Salvage Value
The forecasted residual worth of an asset upon reaching the end of its utility life.
Straight-Line Method
A method of calculating depreciation by evenly distributing the cost of an asset over its useful life.
- Analyze the impact of depreciation, reduction in operating costs, and salvage value on an investment project's cash flow.
- Achieve proficiency in computing the payback period for investment projects and understand its significance in making investment choices.
Verified Answer
HL
Learning Objectives
- Analyze the impact of depreciation, reduction in operating costs, and salvage value on an investment project's cash flow.
- Achieve proficiency in computing the payback period for investment projects and understand its significance in making investment choices.
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