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. Kruger has total fixed costs of $120,000 per year. a. Calculate the PAYBACK PERIOD for each machine for the 2 machines. b. Calculate the Return on investment for each machine. c. Calculate the break-even point for each machine. d. Which machine should Play Now pick and why ?
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. Kruger has total fixed costs of $120,000 per year.
a. Calculate the PAYBACK PERIOD for each machine for the 2 machines.
b. Calculate the
c. Calculate the break-even point for each machine.
d. Which machine should Play Now pick and why ?
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