Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm i considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $30,000 and generates annual after-tax cash inflows of $7,000 for each of the next 12 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $6,000 for 26 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?

Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm i considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $30,000 and generates annual after-tax cash inflows of $7,000 for each of the next 12 years. The second machine requires an initial investment of $21,000 and provides an annual cash inflow after taxes of $6,000 for 26 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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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ne Payback period The Ball Shoe Company is considering an investment project that requires an initial investment of $524,000 and returns after-tax cash inflows of $87,180 per year for 10 years. The firm has a maximum acceptable payback period of 8 years. a. Determine the payback period for this project. b. Should the company accept the project? ts a. The payback period for this project is years. (Round to two decimal places.) Text lia Libra Calculat Resource Enter vour answer in the answer box and then click Check Answer, = Study 1 part remaining Clear All Check. nication Tools > Question 9 (0/1) Question 10 (0/1) Question 11 (0/1) Ouestion 12 (0/1). Type here to search
Management of Christoper, is considering purchasing a new jelly bean-making machine at a cost of $266,419. It projects that the cash flows from this investment will be $99,510 for each of the next seven years l. If the appropriate discount rate is 14 percent, what is the IRR that Christopher management can expect on this project?
Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
The Candida Company wants to purchase a new machine for its factory operations at a cost of $475,000. The investment is expected to generate $175,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $25,000. The machine is expected to have zero value at the end of the four-year period. Required: What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered. a. $509,775; yes b. $34,775; no c. $59,775; yes d. $163,375; no
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Payback comparisons Nova Products has a 4-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternatives. The first machine requires an initial investment of $11,000 and generates annual cash inflows of $2,000 for each of the next 7 years. The second machine requires an initial investment of $10,000 and provides an annual cash inflow of $3,000 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 buy? Why? d. Does this problem illustrate any of the payback method's weaknesses? a. The payback period for the first machine is The payback period for the second machine is b. Is the first machine acceptable? (Select the best answer below.) Yes No Is the second machine acceptable? (Select the best answer below.) No Yes years. (Round to two decimal places.) years. (Round to two decimal…
Management of Daniel Jackson, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $256,144. They project that the cash flows from this investment will be $102,150 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Daniel Jackson management can expect on this project? (Do not round discount factors. Round other intermediate calculations to 0 decimal places e.g. 15 and final answer to 2 decimal places, e.g. 5.25%.)
Master Lock is evaluating whether to replace an older laser engraving machine to inscribe logos with a new machine. – The initial investment to acquire the machine is $380,000. – The machine has an expected useful life of 5 years. – The new machine would generates annual cost savings of $100,0000 (cash flows) one each of the five years. – The discount rate (or required rate of return) is 8%. • What’s the NPV (assume no taxes or inflation)?
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Management of Paul White, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $310,439. They project that the cash flows from this investment will be $137,190 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Paul White management can expect on this project? (Do not round discount factors. Round other intermediate calculations to 0 decimal places e.g. 15 and final answer to 2 decimal places, e.g. 5.25%.) IRR is

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