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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 Summary

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

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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 provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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