Problem 9.6

Blanda 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. If the firm uses a 9 percent discount rate for their production systems.

Year			System 1			System 2
0			-$13,700			-$46,300
1			13,700			31,000
2			13,700			31,000
3			13,700			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 firm invest?

The firm should invest in System 2 or System 1 .