Determine the payback period for machine

Assignment Help Finance Basics
Reference no: EM132530993

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 $180,000 and generates annual after-tax cash inflows of $40,000 for each of the next 8 years.

The second machine requires an initial investment of $290,000 and provides an annual cash inflow after taxes of $52,000 for 18 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 of the weaknesses of using payback? Discuss.

Reference no: EM132530993

Questions Cloud

Explain what is meant by the yield curve : Explain what is meant by the yield curve and briefly outline three theories to explain unequal yields at different maturities and how it is most often sloped.
Shareholders of alpha company : The shareholders of Alpha Company have voted in favor of a buyout offer from Beta Company.
What is the share price in the planning period : You are advising a company that is working to raise $100,000,000. You believe that it is best for the company to issue stocks and bonds to raise these funds
Determine the payback period for machine : Nova Products has a 5-year maximum acceptable payback period.
Fully hedge against the pound exposure : An FI has a 1-year 8% US $160 million loan financed with a 1-year 7% UK GBP 100 million CD. The current exchange rate is $1.60/GBP. If the current rate
Claim lower amounts of cca on the machine : Doris Doll Co. (DDC) is considering either leasing or buying a new machine. Which of the following circumstances presents a potential disadvantage
Npv and irr decision rule in making decision : Should Louie's accept the project by replacing the existing equipment with the new one? Use NPV and IRR decision rule in making your decision.
Calculate the expected rate of return : a. Calculate the Expected rate of return b. The current value based on your required rate of return

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the amount of the weekly revenue

A marketing group has estimated that adding the senior's meal would change the weekly meals sold to 345 adult, 65 senior, and 40 children's meals. What is the amount of the weekly revenue that should be used when analyzing the addition of the seni..

  What is the p/e ratio

A stock is selling for $32 a share. There are 125,000 shares outstanding and the net income of the firm is $387,000. What is the P/E ratio?

  Does rpm actually create a shortest path tree

Which phase is responsible for creating a broadcast tree with the router as the root? Which phase is responsible for changing the broadcast tree to a multicast tree?

  What is the new yield to maturity on the bond

a. What is the new yield to maturity on the bond (one year from now)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

  Make purchasing a computer system

What is the minimum lease payment that would make purchasing a computer system and writing a 6-year lease contract on it? The price of the computer system

  How can dividends and repurchases be used to signal managers

How can dividends and repurchases be used to signal managers' information about their firms' prospects?

  For what price must you sell the property

You are considering purchase of a property for 250,000 with a 70,000 down payment. Cash flows will be $4,000 every year for 20 years and will grow 4% a year.

  What would the cost of equity be

Calculating WACC. Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 9.1 percent, and its cost of debt is 5.5 percent. There is no corporate tax.

  Evaluation of corporate performance

Evaluation of corporate performance1. Introduction2. Financial Statement Review3. Pro Forma Financial Statements

  Determine the increase or decrease in cash for rinky supply

Determine the increase or decrease in cash for Rinky Supply Company for last year, given the following information. (Assume no other changes occurred during the past year.)

  How much money should he invest now in order

Ten years ago, Jane made a one-time investment of $1,000 and locked in a 9% annual interest rate for the next 30 years (ending 20 years from now).

  Formulate and justify an investment policy statement

Mr. Jones is forty-five years old and is in good health. He is married, and has two children aged 17 and 18. He and his wife own all shares in a Limited Liability Corporation that owns a tavern and adjacent restaurant presently valued,

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd