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Maryville Cleaners has the opportunity to invest in one of two dry cleaning machines. Machine A has a four-year expected life and a cost of
Maryville Cleaners has the opportunity to invest in one of two dry cleaning machines. Machine A has a four-year expected life and a cost of $40,000. It will cost an additional $10,000 to have the machine delivered and installed, and the expected residual value at the end of four years is $2,000. Machine B has a four-year expected life and a cost of $60,000. It will cost an additional $15,000 to have the machine delivered and installed, and the expected residual value at the end of four years is $5,000. The company has a required rate of return of 10 percent. Additional cash flows related to the machines are as follows: Machine A Item Labor savings Power savings Chemical savings Additional maintenance costs Additional miscellaneous costs Year 1 $10,000 1,500 3,000 (1,200) (2,500) Year 2 $15,000 1,500 3,000 (1,200) (2,500) Year 3 $20,000 1,500 3,000 (1,200) (2,500) Year 4 $25,000 1,500 3,000 (1,200) (2,500) Machine B Item Labor savings Power savings Chemical savings Additional maintenance costs Additional miscellaneous costs Year 1 $20,000 2,000 3,500 (1,500) (3,000) Year 2 $25,000 2,000 3,500 (1,500) (3,000) Year 3 530,000 2,000 3,500 (1,500) (3,000) Year 4 $35,000 2,000 3,500 (1,500) (3,000) Requirement 1: Compute the payback periof for each of the two machines. . 2 Question please show step by step
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