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
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.
Year Incremental
Cash Inflows Incremental Cash Outflows
Year
1 $ 27,000 $ 22,000
2 28,000 23,000
3 33,000 28,000
4 36,000 31,000
5 35,000 30,000
6 34,000 29,000
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?
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