The Wychoff Company spucalizes in decorative frut haketa Cununtly, the c alterma
ID: 2598194 • Letter: T
Question
The Wychoff Company spucalizes in decorative frut haketa Cununtly, the c altermatives for a fruit-polishing machine Data relevant to the decision are as fol ) s mg puua" Machine X Machin $80,000 5 years S2.000 532,000 572 Cost Useful life Residual value 3.000 stimated annual net cash flows value multipliers at 12 percent Dollar received at the end of five years Dollar received at the end of each of the next five years a Compute the payback period for each of the alternatives. Round answers to two decimal places Machine Machise Y: seo b Using the net present value method, erenam hich machine the company shouldExplanation / Answer
Solution:
Part a – Payback Period – It is correct in the question
Part b – Calculation of Net Present Value
Machine X
Year
Cash Flow
(A)
PV factor @12%
(B)
Present Value of Cash Flow
(A*B)
0
Cost
($80,000)
1
-$80,000
1-5
Estimated annual net cash flows
$32,000
3.605
$115,360
5
Residual Value
$2,000
0.567
$1,134
Net Present Value
$36,494
Machine Y
Year
Cash Flow
PV factor @12%
Present Value of Cash Flow
0
Cost
($72,000)
1
-$72,000
1-5
Estimated annual net cash flows
$28,000
3.605
$100,940
5
Residual Value
$3,000
0.567
$1,701
Net Present Value
$30,641
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Year
Cash Flow
(A)
PV factor @12%
(B)
Present Value of Cash Flow
(A*B)
0
Cost
($80,000)
1
-$80,000
1-5
Estimated annual net cash flows
$32,000
3.605
$115,360
5
Residual Value
$2,000
0.567
$1,134
Net Present Value
$36,494
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