scarletknight91 – based on this question, I would say include Fixed Costs. I know this question doesn't specify which operating expenses are fixed vs variable but if it mattered I doubt they would combine them.
A company invested in a new machine that will generate revenues of $35,000 annually for seven years. The company will have annual operating expenses of $7,000 on the new machine. Depreciation expense, included in the operating expenses, is $4,000 per year. The expected payback period for the new machine is 5.2 years. What amount did the company pay for the new machine?
$166,400
Explanation
Choice “c” is correct. The company paid $166,400 for the machine based on the payback data provided. The payback value (in years) is the amount of the capital investment divided by the after-tax cash flows of the project. By extension, the amount of the investment, the amount the company paid for the new machine) is the after-tax cash flow times the payback period computed as follows:
A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!
Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.
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