Heartland Paper Company is considering the purchase of a new high-speed cutting machine. Two cutting machine manufacturers

Question:

Heartland Paper Company is considering the purchase of a new high-speed cutting machine. Two cutting machine manufacturers have approached Heartland with proposals:
(1) Toledo Tools and
(2) Akron Industries. Regardless of which vendor Heartland chooses, the following incremental cash flows are expected to be realized.

a. If the machine manufactured by Toledo Tools costs $30,000, what is its expected payback period?
b. If the machine manufactured by Akron Industries has a payback period of 60 months, what is its cost?
c. Which of the machines is most attractive based on its respective payback period? Should Heartland base its decision entirely on this criterion? Explain your answer.

Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...