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Managerial Accounting

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Decisions When NPV and Payback Are Similar

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Stone Company wants to buy a new machine to reduce quality issues and has received three bids for the new machine, ranging from \$3,500,000 to \$3,550,000.

The estimated annual savings from reduced rework and scrap of the machine ranges from \$260,000 to \$270,000. The payback periods are almost identical among the three bids and the net present values are all within \$8,000 of each other.

When the options are so close together, what non-quantitative aspects might the decision maker need to consider?

A

The trade-in value for the old machine offered by the vendor selling the machine.

B

The warranty offered by the seller of the machine.

C

The safety record of the old machine.

D

The useful life for tax purposes of the machines.