The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback. $$\begin{array} { | l | l | l | l | }
\hline & \text { Machine } A & \text { Machine B } & \text { Machine C } \
\hline \text { Annual cash flow } & \$ 40,000 & \$ 50,000 & \$ 75,000 \
\hline \text { Average investment } & \$ 300,000 & \$ 250,000 & \$ 500,000 \
\hline
\end{array}$$

Question

The production department is proposing the purchase of an automatic insertion machine. It has identified 3 machines and has asked the accountant to analyze them to determine the best cash payback. $$\begin{array} { | l | l | l | l | } 
\hline & \text { Machine } A & \text { Machine B } & \text { Machine C } \
\hline \text { Annual cash flow } & \$ 40,000 & \$ 50,000 & \$ 75,000 \
\hline \text { Average investment } & \$ 300,000 & \$ 250,000 & \$ 500,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The cash payback period is calculated by dividing the average investment by the annual cash flow. Machine B has the shortest payback period: $250,000 / $50,000 = 5 years.

The Production Department Is Proposing the Purchase of an Automatic