Pharoah 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. The firm uses a 8 percent discount rate for their production systems. Year 0 1 2 3 System 1 -$14,300 14.300 14,300 14,300 System 2 -$44,200 31,900 31,900 31,900 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?
Pharoah 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. The firm uses a 8 percent discount rate for their production systems. Year 0 1 2 3 System 1 -$14,300 14.300 14,300 14,300 System 2 -$44,200 31,900 31,900 31,900 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?
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
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Transcribed Image Text:Pharoah 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. The firm uses a 8
percent discount rate for their production systems.
Year
0
1
2
3
System 1
-$14,300
14,300
14,300
14,300
System 2
-$44,200
31,900
31,900
31,900
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?
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