You are the CFO for Play Now sports and you have 2 different machines to consider for purchase. The machines will be used to fabricate large size rubber balls that will sell for $30 each. The first machine will cost $45,000 and it will last for a period of 6 years. It will allow you to save $15,000 in year 1, $14,000 in year 2, $13,000 in year 3, $12,000 in year 4, $11,000 in year 5 and $10,000 in year 6. Using this machine will generate variable costs of products sold of $15 each. The other option is a machine that will last for only 5 years. It will cost $30,000 and it will save $8,000 each year. Variable costs, using this machine will be $18 each. Play Now Sports has fixed costs of $150,000 per year. 

a. Calculate the PAYBACK PERIOD in full and incremental years for each machine. 

b. Calculate the Return on investment for each machine. 

c. How many rubber balls would Play Now need to sell to make $30,000 in profit

Answer rating: 100% (QA)

Determining the Best Machine for Play Now Sports a Payback Period Machine 1 Year Savings Cash Flow C... View the full answer