Reference no: EM131304615

Nova Products has a 6 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 $ 10,000 and generates annual? after-tax cash inflows of $ 2,000 for each of the next 8  years. The second machine requires an initial investment of $ 45,000 and provides an annual cash inflow after taxes of $ 8,000 for 26 years.

1) The payback period for the first machine is ______years. Round to two decimals

2) The payback period for the second machine is _______years. Round to two decimal points

3) Is the first machine? acceptable? Yes or No

4) Is the second machine acceptable? Yes or No

5) Based on their payback? periods, which machine should the firm? accept? First, second or neither? Pick one

6) Do the machines in this problem illustrate any of the weaknesses of using? payback? Select one answer from below choices

A) Machine 2 has returns that last only 8 years while Machine 1 has 26  years of returns. Payback cannot consider this? difference; it ignores all cash inflows beyond the payback period.

B) Machine 2 has returns that last 26  years while Machine 1 has only 8  years of returns. Payback cannot consider this? difference; it ignores all cash inflows beyond the payback period.

C) Machine 2 has returns that last 26 years while Machine 1 has only 8  years of returns. Payback considers this? difference; it includes all cash inflows beyond the payback period.

D) Machine 2 has returns that last 26  years while Machine 1 has only 8  years of returns. Payback considers only the first 8 years for each machine.