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Which of the machines is most attractive based on its

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Reference no: EM13482369

Heartland Paper Company is considering the purchase of a new high-speed cutting machine. Tow 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                                                              IncrementalCash             Incremental Cash

                                                                         Inflows                            Outflows     

1.......................................................            $26,000                      $20,000

2........................................................            27,000                        21,000

3........................................................            32,000                        26,000

4.........................................................            35,000                        29,000

5.........................................................            34,000                        28,000

6..........................................................            33,000                        27,000

a. If the machine manufactured by Toledo Tools costs $27,000, what is its expected payback period?

b. If the machine manufactured by Akron Industries has a payback period of 66 months, what is its cost?

c. Which of the machines is most attractive based on its respective paybackperiod? Should Heartland base its decision entirely on this criterion? Explain your answer.

Reference no: EM13482369

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