e Wyckoff Company specializes in decorative fruit baskets. Currently, the compan
ID: 2458560 • Letter: E
Question
e 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
567
Dollar received at the end of each of the next five years
3,605
a. Compute the payback period for each of the alternative. Round answer to 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.)
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
Explanation / Answer
a)Payback period = initial investment / net annual cash flow
Machine X = $80,000/32,000 = 2.5 years
Machine y = $72,000/28,000 = 2.57 years
Net present value methodl
Should purchase machine X
Machine X Machine y Iniital investment (80,000) (72,000) Annual net cash flow (3.605) 115,360 100,940 Residual value 1134 1701 Net present value 36,494 $30,641Related Questions
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