What is its expected payback period

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Question - Heartland Paper Company is considering the purchase of a new high-speed cutting machine. Two cutting machine manufacturers have approached Heartland with proposals: (1) Toledo Tools and (2) Akron Industries. Regardless of which vendor Heartland chooses, the following incremental cash flows are expected to be realized.

Year

Incremental Cash Inflows

Incremental Cash Outflows

1

$27,000

$22,000

2

$28,000

$23,000

3

$33,000

$28,000

4

$36,000

$31,000

5

$35,000

$30,000

6

$34,000

$29,000

Required -

a. If the machine manufactured by Toledo Tools costs $30,000, what is its expected payback period?

b. If the machine manufactured by Akron Industries has a payback period of 60 months, what is its cost?

c. Which of the machines is most attractive based on its respective payback period?

Reference no: EM132534305

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