lossom 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 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,000 -$42,000 1 12,000 30,000 2 12,000 30,000 3 12,000 30,000
lossom 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 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,000 -$42,000 1 12,000 30,000 2 12,000 30,000 3 12,000 30,000
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 6E: Cash payback method Lily Products Company is considering an investment in one of two new product...
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Blossom 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 7 percent discount rate for their production systems.
Year | System 1 | System 2 | |||
0 | -$12,000 | -$42,000 | |||
1 | 12,000 | 30,000 | |||
2 | 12,000 | 30,000 | |||
3 | 12,000 | 30,000 |
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 ________yrs & payback period of System 2 is ________yrs.
If the systems are mutually exclusive & the firm always chooses projects with the lowest payback period, in which system should the firm invest?__________
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