Santos Company needs a new cutting machine. The company is considering two machines: machine X and machine Y. Machine A costs $18,000, has a useful life of ten years, and will reduce operating costs by $7,000 per year. Machine B costs only $12,500, will also reduce operating costs by $3,500 per year, but has a useful life of only five years. The payback period formula is = Investment required / Annual Net Cash Inflow Which machine should be purchased according to the payback method? a)Machine X
Santos Company needs a new cutting machine. The company is considering two machines: machine X and machine Y. Machine A costs $18,000, has a useful life of ten years, and will reduce operating costs by $7,000 per year. Machine B costs only $12,500, will also reduce operating costs by $3,500 per year, but has a useful life of only five years. The payback period formula is = Investment required / Annual Net Cash Inflow Which machine should be purchased according to the payback method? a)Machine X
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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Santos Company needs a new cutting machine. The company is considering two machines: machine X and machine Y. Machine A costs
$18,000, has a useful life of ten years, and will reduce operating costs by $7,000 per year. Machine B costs only $12,500, will also reduce
operating costs by $3,500 per year, but has a useful life of only five years.
The payback period formula is = Investment required / Annual Net
Which machine should be purchased according to the payback method?
a)Machine X
b) none of the above
c) Machine Y
d) Both have the same payback period
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