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    Selecting Machine by Payback Period Method

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    The Dammon Corp. has the following investment opportunities.

    Year Machine A Inflows Machine B Inflows Machine C Inflows
    ($15,000 investment) ($22,500 investment) ($37,500 investment)
    1 $6,000 $12,000 $-0-
    2 9,000 12,000 30,000
    3 3,000 10,500 30,000
    4 -0- 10,500 15,000
    5 -0- -0- 15,000

    Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose?
    Machine A
    Machine B
    Machine C
    Machine A and B

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    Solution Preview

    Please refer attached file for better clarity of tables.

    Machine A Machine B Machine C
    Inflows Cumulative cash inflow Inflows Cumulative cash inflow Inflows Cumulative cash inflow
    ($15,000 investment) ...

    Solution Summary

    Solution depicts the steps to calculate payback period for each of the three proposals.