Vandezande Inc. is considering the acquisition of a new machine that costs $435,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (Ignore income taxes.):

	Incremental Net Operating Income			Incremental Net Cash Flows
Year 1	$	76,000		$	155,000
Year 2	$	82,000		$	161,000
Year 3	$	93,000		$	175,000
Year 4	$	56,000		$	158,000
Year 5	$	98,000		$	160,000

Assume cash flows occur uniformly throughout a year except for the initial investment.

The payback period of this investment is closest to:

Garrison 16e Rechecks 2017-11-15

Multiple Choice

• 5.0 years

• 2.7 years

• 2.2 years

• 4.3 years

Denny Corporation is considering replacing a technologically obsolete machine with a new state-of-the-art numerically controlled machine. The new machine would cost $110,000 and would have a sixteen-year useful life. Unfortunately, the new machine would have no salvage value. The new machine would cost $12,000 per year to operate and maintain, but would save $42,000 per year in labor and other costs. The old machine can be sold now for scrap for $11,000. The simple rate of return on the new machine is closest to (Ignore income taxes.):

Multiple Choice

• 23.36%

• 46.72%

• 38.18%

• 21.02%