The production department is proposing the purchase of an automatic insertion machine. It has identified 3...
The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback.
| Machine A | Machine B | Machine C | |
| Annual cash flow | $40,000 | $50,000 | $75,000 |
| Average investment | $300,000 | $250,000 | $500,000 |
a.Machine C
b.Machine A
c.Machine B
d.All of these choices are equal.
Homework Answers
Payback period=Average investment/Annual cash flows
| A | B | C | |
| Payback period | (300,000/40000)=7.5 years | (250000/50,000)=5 years | (500,000/75000)=6.67 years(Approx) |
Hence B is the best machine in terms of lowest payback period.
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