The Cute Car Company is expanding its production facilities to include a new product line, an energy-efficient sporty convertible. The car can be produced with little labor cost using computerized machinery. There are two such machines to choose from. The details about each machine are as follows:

The company's minimum rate of return is 15 percent. The maximum payback 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?

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GoGo Machine Autom Machine Cost of machine Residual value Net income Annual net cash intlows $325,000 32,500 30,000 50,000 $300,000 30,000 25,000 60,000