Answer :
Final answer:
The payback period for Oven A is 5 years, while the payback period for Oven B is 5.33 years. Therefore, XYZ Bakery should purchase A) Oven A.
Explanation:
The payback method is a financial analysis tool used to determine the time it takes for an investment to recover its initial cost. To determine which oven XYZ Bakery should purchase using the payback method, they need to calculate the payback period for each oven. Oven A: If the cost of Oven A is $10,000 and it generates a net income of $2,000 per year, the payback period would be $10,000 / $2,000 = 5 years. Oven B: If the cost of Oven B is $8,000 and it generates a net income of $1,500 per year, the payback period would be $8,000 / $1,500 = 5.33 years. Since Oven A has a shorter payback period, XYZ Bakery should purchase Oven A.
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