Response to the following problem:
Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 10 percent discount rate for their production systems.
Year System 1 System 2
0 -$15,700 -$44,900
1 15,700 33,200
2 15,700 33,200
3 15,700 33,200
What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.)
If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in System 1 or System 2?
please label answers/ show work.