Question
A company is examining a possibility of investing in a new machine. Two machines are available, Machine A and Machine B. Both machines require an
A company is examining a possibility of investing in a new machine. Two machines are available, Machine A and Machine B. Both machines require an investment of $450,000 and have a life of six years. The estimated cash flows that each machine is likely to generate over their lives are given below:
Year Option A Option B 1 100,000 80,000 2 150,000 90,000 3 150,000 180,000 4 100,000 100,000 5 100,000 150,000 6 100,000 150,000
Required: (a) Calculate the payback period of Machine A and Machine B. (b) Which machine would you select based on the payback period method? Why?
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