1. Choo Choo Inc. is a manufacturer of model trains. The company is considering the purchase of an industrial 3D printer, which will allow the firm to produce custom-made model trains for its high-end customers. The printer will cost $2,500,000, and it is expected to produce net cash flows of $600,000 per year for the next six years. Liquidation of the equipment will net the firm $350,000 in cash at the end of six years. The firm requires a 15% rate of return on all investments. Ignore the effects of taxes. c. Choo Choo’s cutoff period is set at five years. Based on the payback period investment criterion, will the company purchase the printer? Will it purchase the printer based on the discounted payback period investment criterion?
A3 Q 1 c
1. Choo Choo Inc. is a manufacturer of model trains. The company is considering the purchase of an industrial 3D printer, which will allow the firm to produce custom-made model trains for its high-end customers. The printer will cost $2,500,000, and it is expected to produce net cash flows of $600,000 per year for the next six years. Liquidation of the equipment will net the firm $350,000 in cash at the end of six years. The firm requires a 15%
c. Choo Choo’s cutoff period is set at five years. Based on the payback period investment criterion, will the company purchase the printer? Will it purchase the printer based on the discounted payback period investment criterion?
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