The Raab Company is expanding its production facilities to include a new product line, a sporty automotive tire rim. Tire rims can now be produced with little labor cost using new computerized machinery. The controller has advised management about two such machines. The derails about each machine are as follows:

The company's minimum rate of return is 12 percent. The maximum pay-back period is six years. (Where necessary, round calculations.)

Required
1. For each machine, compute the projected accounting rate of return.
2. Compute the payback period for each machine.
3. Based on the information from requirements 1 and 2, which machine should be purchased? Why?

Transcribed Image Text:

XJS MachineHZT Machine Cost of machine Residual value Net income Annual net cash inflows $500,000 50,000 34,965 91,215 $550,000 55,000 40,670 90,170