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Work Sheet Question 11 The Raab Company is expanding its production facilities to include a new product line, a sporty automotive tire rim. Tire rims
Work Sheet Question 11 The Raab Company is expanding its production facilities to include a new product line, a sporty automotive tire rim. Tire rims can now be produced with little labour cost using new computerized machinery. The controller has advised management about two such machines. The details about each machine are as follows: XJS HZT Cost of machine Residual Value Net income Annual net cash inflows Machine $500,000 50.000 34,965 91,215 Machine $550,000 55.000 40,670 90,170 The minimum rate of return is 12 percent. The maximum payback period is 6 years. (Where necessary, round calculations to the nearest dollar). Required: 1. For each machine, compute the projected accounting rate of return 2. compute the payback period for each machine 3. Based on the information from 1 and 2 above, which machine should be purchased? Why? o
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