Managerial Accounting

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Decisions When NPV and Payback Are Similar


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?


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


The warranty offered by the seller of the machine.


The safety record of the old machine.


The useful life for tax purposes of the machines.