Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,800 -$42,700 1 12,800 32,300 2 12,800 32,300 3 12,800 32,300 What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is years and Payback period of System 2 is years If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in .system 1 system 2
Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,800 -$42,700 1 12,800 32,300 2 12,800 32,300 3 12,800 32,300 What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is years and Payback period of System 2 is years If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in .system 1 system 2
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 7 percent discount rate for their production systems.
| Year | System 1 | System 2 | |||||
| 0 | -$12,800 | -$42,700 | |||||
| 1 | 12,800 | 32,300 | |||||
| 2 | 12,800 | 32,300 | |||||
| 3 | 12,800 | 32,300 |
What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.)
| Payback period of System 1 is
|
If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest?
| The firm should invest in
.system 1 system 2 |
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