Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Cash Flow Statement Analysis
A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business dur…
Question

Ef 404.

Payback comparisons Nova Products has a -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 $19,000 and generates annual after-tax cash inflows of $3,000 for each of the next 9 years. The second machine requires an initial investment of $33,000 and provides an annual cash inflow after taxes of $5,000 for 30 years. Determine the payback period for each machine. Comment on the acceptability of the machines, assuming that they are independent projects. Which machine should the firm accept? Why? Do the machines in this problem illustrate any of the weaknesses of using payback? a. b. C. d.
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Transcribed Image Text:Payback comparisons Nova Products has a -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 $19,000 and generates annual after-tax cash inflows of $3,000 for each of the next 9 years. The second machine requires an initial investment of $33,000 and provides an annual cash inflow after taxes of $5,000 for 30 years. Determine the payback period for each machine. Comment on the acceptability of the machines, assuming that they are independent projects. Which machine should the firm accept? Why? Do the machines in this problem illustrate any of the weaknesses of using payback? a. b. C. d.
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