Question
The Logan Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are
The Logan Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows: Cost for Machine A$85,000, Machine B $74,000, useful life, Machine A, 6 years, Machine B, 6 years, Residual value Machine A, $5,000, Machine B, $4,000, Estimated annual net cash flows, Machine A, $30,000, Machine B, $28,000, Present value multipliers at 10 percent: Dollar received at the end of six years, .564, Dollar received at the end of each of the next six years, 4.355. Compute the payback period for each of the alternatives. Machine A, Machine B. Using the net present value method, prepare an analysis to determine which machine the company should purchase, ( The company uses a 10 percent minimum desired rate of return).
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