Question

PE Company must replace one of its current machines with either Machine A or Machine B. The useful life of both machines is seven years. Machine A costs $48.000, and Machine B costs $51.000. Estimated annual cash flows with the two machines are as follows: Year Machine A Machine B S-6,000 $-7,000 -4,000 -8,000 -3,000 -8.000 -3,000 -6,000 -3,000 -5,000 -2,000 -4,000 -2,000 -8.000 If X Company buys Machine B instead of Machine A, what is the payback period in years)? 11. AO 2 BO 3 CO 4 DO 5 EO 6 FO7

Answer 1

Hit Thumbs up if answer is right please

Answer A 2

Calculated as

Extra cost in buying machine B = $51000-$48000 = $3000

Which will be recovered in 2 years as calculated below

Year	Machine A	Machine B	Incremental Saving	Cumulative Savings
1	$ (6,000)	$ (7,000)	$ (1,000)	$                            (1,000)
2	$ (8,000)	$ (4,000)	$    4,000	$                              3,000
3	$ (8,000)	$ (3,000)	$    5,000	$                              8,000
4	$ (8,000)	$ (3,000)	$    5,000	$                            13,000
5	$ (6,000)	$ (3,000)	$    3,000	$                            16,000
6	$ (5,000)	$ (2,000)	$    3,000	$                            19,000
7	$ (4,000)	$ (2,000)	$    2,000	$                            21,000