Blossom Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 7 percent discount rate for their production systems.Year System 1 System 2 0 -$12,000 -$42,000 1 12,000 30,000 2 12,000 30,000 3 12,000 30,000 What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.)Payback period of System 1 is ________yrs & payback period of System 2 is ________yrs.If the systems are mutually exclusive & the firm always chooses projects with the lowest payback period, in which system should the firm invest?__________

The time it takes to recover the cost of an investment is referred to as the payback period. Simply…

Answered: lossom Incorporated management is…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7PA: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Blossom Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 7 percent discount rate for their production systems.

Year	System 1	System 2
0	-$12,000	-$42,000
1	12,000	30,000
2	12,000	30,000
3	12,000	30,000

What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.)

Payback period of System 1 is ________yrs & payback period of System 2 is ________yrs.

If the systems are mutually exclusive & the firm always chooses projects with the lowest payback period, in which system should the firm invest?__________

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