The Wyckoff Company Specializes in Decorative Fruit Baskets A Compute the Payback Period for Each of the Alternatives

question 90

Essay

The Wyckoff Company specializes in decorative fruit baskets.Currently,the company is analyzing purchase alternatives for a fruit-polishing machine.Data relevant to the decision are as follows:
$$\begin{array} { | l r r | } \hline \text { Cost } & \text { Machine X } & \text { Machine Y } \\\text { Useful life } & \$ 80,000 & \$ 72,000 \\\text { Residual value } & 5 \text { years } & 5 \text { years } \\\text { Estimated annual net cash flows } & \$ 2,000 & \$ 3,000 \\& \$ 32,000 & \$ 28,000 \\\text { Present value multipliers at } 12 \text { percent: } & \\\text { Dollar received at the end of five years } && 567 \\\text { Dollar received at the end of each of the next five years } && 3.605 \\\hline\end{array}$$
a. Compute the payback period for each of the alternatives. Round answers to two decimal places.
b. Using the net present value method, prepare an analysis to determine which machine the company should purchase. (The company uses a 12 percent minimum desired rate of return.)

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Definitions:

Direct Labor Costs

The wages and benefits paid for labor that is directly involved in the production of goods.

Property, Plant, and Equipment

Long-term tangible assets that a company uses in its operations and that are expected to provide benefits for more than one year.

Standard Cost

A predetermined cost of manufacturing a product or providing a service, under normal conditions, which serves as a benchmark for measuring performance.

Direct Labor Workers

Direct Labor Workers are employees who are directly involved in the production of goods or services, whose wages are considered part of the direct costs of production.