Determine the payback period for each machine

Assignment Help Financial Management

Reference no: EM13947672

Payback comparisons: Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. The first machine requires an initial investment of $14,000 and generates annual after-tax cash inflows of $3,000 for each of the next 7 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $4,000 for 20 years.

A) Determine the payback period for each machine.

B) Comment on the acceptability of the machines, assuming that they are independent projects.

C) Which machine should the firm accept? Why?

D) Do the machines in this problem illustrate any the weaknesses of using payback? Discuss.

Reference no: EM13947672

Questions Cloud

Products has an issue of outstanding bonds : Prairie Dog Products has an issue of outstanding bonds that have a 6% annual coupon, a 7 percent yield to maturity and a nine year maturity. Are these bonds selling at a premium or a discount?

Flexible exchange rate system-managed exchange rate system : If a change in market conditions causes a currency to become overvalued, how would it adjust to equilibrium in a flexible exchange rate system? Why do some private market participants prefer a fixed exchange rate system over a flexible exchange rate ..

Problem regarding the infinite homogeneous body : At a given instant of time, the temperature distribution within an infinite homogeneous body is given by the function

What was the amount of bayside total fixed costs : For 2012, Bayside Corporation sold 130,000 units of its product for $35 each. The variable cost per unit was $30, and Bayside's margin of safety was 30,000 units. What was the amount of Bayside's total fixed costs?

Determine the payback period for each machine : Payback comparisons: Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. Determine the payback period for each machine. Comment on the accep..

Heat capacity pcp of common brick : Compare and contrast the heat capacity pcp of common brick, plain carbon steel, engine oil, water, and soil. Which material provides the greatest amount of thermal energy storage per unit volume? Which material would you expect to have the lowest ..

What is the approximate standard deviation of portfolio : You have a portfolio which has an average return of 10.3 percent. In any given year, you have a 2.5 percent probability of earning either a zero or a negative annual return. What is the approximate standard deviation of your portfolio?

How much does development office need to ask for up front : Katherine wishes to endow a professorship in honor of her beloved mycology professor. The University's development office has prepared a proposal for her review, to wit, "The Agnew Chair in Fungus Studies," which will contribute $1 million per year, ..

Provide three measures of forecast accuracy : Fit a linear trend to this data. Estimate and interpret the coefficients of this model. Does the linear model fit well? Interpret the coefficient of determination and standard error of estimate. Provide three measures of forecast accuracy.

User Account

All Pages