18Calculate the payback period for each proposal. Would the proposal with a shorter paybackperiod be more “profitable" than one with a longer payback period? Explain. TLT Ltd is considering the purchase of a new machine for use in its production process. Managementhas developed three alternative proposals to help evaluate the machine purchase. Only one of theseproposals can be implemented.Proposals A and B both have the same cost to set up, but the output from proposal A (as measured byfuture net cash flows) commences at a high rate and then declines over time, while Proposal B starts ata low rate and then increases over time. Proposal C involves buying two of the machines consideredunder proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C resultsin net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years.The estimated net cash flows, internal rates of return and net present values at 9% and 11% for eachproposal are given in the following table.Proposal A-$290,000$100,000$90,000Proposal B-$290,000$40,000$50,000Proposal C-$580,000$80,000$100,000End of Year1Suggested Answers to Sample Final Exam 22$60,000$70,000$80,000$90,000$100,000$200,00012.8%3$80,000$70,000$60,000$50,000$40,000$200,00018.2%$120,000$140,000$160,000$180,000$200,000$400,000(i)(ii)(iii)47Sum of cash flowsInternal rate of returnNPV (at 9%)NPV (at 11%)$79,549$59,348$45,064$20,359

Payback period is the no. of years required to recover the initial amount invested.

Answered: Calculate the payback period for each…

Calculate the payback period for each proposal. Would the proposal with a shorter payba period be more “profitable" than one with a longer payback period? Explain.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...

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