Apple Products has a 3 year maximum acceptable payback period The fi alternative

Question

Apple Products has a 3 year maximum acceptable payback period The fi alternatives: Machine R and Machine T. Machine R requires an initial investment of $10,000 and generates annual after tax cash inflows of $3,000 for each of the next 7 years. Machine T requires an intial investment of $11,000 and provides an annual cash inflow after taxes of $4,000 for 20 years a Determine the payback period for each machine (3 points) b. Assuming they are independent projects, which projects would you accept based on the payback period? (2 points) Pah p Words o QUESTION 63 Click Save and Submit to e and aubmit. Click Save All Anwera to suve all anssers Save MAnswers A IMG 2243 jpg IMG 2242jpg IMG,224 1 jpg IMG 2240jpg 4 Notes docx e here to search

Explanation / Answer

a) The payback period for each machine = Machine R = 10000 / 3000 = 3.33 years Machine T = 11000 / 4000 = 2.75 years b) In case the projects are independent, then we choose Machine T on the basis of Payback period. This is because the payback period is shorter to Machine R.

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