## Answers

**Answer:**

Particulars | Machine A | Machine B |

Cost of the machine | 60000 | 40000 |

Net annual benefit | 10000 | 10000 |

Life (in years) | 10 | 4 |

Year | Machine A savings | Machine A cumulative savings | Machine B savings |

1 | 10000 | 10000 | 10000 |

2 | 10000 | 20000 | 10000 |

3 | 10000 | 30000 | 10000 |

4 | 10000 | 40000 | 10000 |

5 | 10000 | 50000 | |

6 | 10000 | 60000 | |

7 | 10000 | 70000 | |

8 | 10000 | 80000 | |

9 | 10000 | 90000 | |

10 | 10000 | 100000 | |

Payback period: | |||

Formula: | =Year + (Cumulative return greater than initial outflow-initial outflow)/(Cumulative return greater than initial outflow-Cumulative return for the previous year) | 6 years, since the Machine A is able to cover the investment in 6 years. | 4 years, since the Machine A is able to cover the investment in 6 years. |

Conclusion/Rank | II | I | |

Since, Machine B is able to recover itsexpenses in just 4 years. |

**Answer a. According to the Payback period method, the best option is Machine B since it is able to recover its expenses in just 4 years but Machine A in 6 years.**

**Answer b. If the company requires a 3 year or shorter period, both the machines are not feasible since in Machine B also atleast 4 years is required to recover the cost.**

**Answer C:**

The other factors that might influence investment decision are as follows:

i. Rate of return on investment;

ii. Long-term useful life of the machine and the ability to generate revenue;

iii. Salvage value of each machines;

iv.

Replacement cost;

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