Problem 10.06

Pharoah Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 8 percent discount rate for their production systems.

Payback period of System 1 is( ) years andPayback period of System 2 is( )years.

Problem 10.06 Pharoah Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash ows are shown in the accompanying table. The rm uses a 8 percent discount rate for their production systems. Year System 1 System 2 0 $12,200 -$42,200 1 12,200 31,000 2 12,200 31,000 3 12,200 31,000 what are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is ' years and Payback period of System 2 is years. If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the rm invest? The rm should invest in l V