The Wyckoff 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.
_________________________________Machine X__________ Machine Y
Cost..............................................$80,000..................$72,000
Useful life..................................................5 years....................5 years
Residual value ..........................................$2,000.....................$3,000
Estimated annual net cash flows..............$32,000....................$28,000
Present value multipliers at 12 percent:
Dollar received at the end of five years...................................................0.567
Dollar received at the end of each of the next five years................3.605 (annuity factor)
a. Compute the payback period for each of the alternative. (Round answer around two decimal places)
b. Using the net present value method, prepare an analysis to determine which machine the company should purchase. (The company uses a 12 percent minimum desired rate of return)