The Cal-Fruit Company Specializes in Decorative Fruit Baskets Present Value Multipliers at 12 Percent:
Dollar Received at the Company

question 36

Essay

The Cal-Fruit 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:
$\begin{array}{lrr} & \text { Machine A } & \text { Machine B } \\ \text { Cost } & \$ 90,000 & \$ 82,000 \\ \text { Useful life } & 5 \text { years } & 5 \text { years } \\ \text { Residual value } & \$ 2,000 & \$ 3,000 \\ \text { Estimated annual net cash flows } & \$ 35,000 & \$ 30,000\end{array}$
Present value multipliers at 12 percent:
Dollar received at the end of five years $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad.567$
Dollar received at the end of each of the next five years $\quad$ $\quad3.605$
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:

Trading Investments

Trading investments are financial assets acquired with the intention of selling them for a short-term gain, often held by companies in financial sectors.

Statement Of Financial Position

A financial report that displays a company's assets, liabilities, and equity at a specific point in time.

Unrealized Gains

Increases in the value of assets that a company holds which are not realized through a sale transaction.

Marketable Trading Investments

Securities that a company holds primarily for the purpose of trading and expects to sell in the short term to generate profit.