HW 6 - a Payback period Initial Investment Annual Cash...

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a) Payback period: Initial Investment / Annual Cash Inflow First Machine: Initial Cash Flow: $14,000 Annual after-tax cash flows: $3,000 per year for 7 year Payback period: $14,000 =4,67 This means payback for the $3,000 Second Machine: Payback period: $21,000 =5.25 This means payback for the $4,000 b) If the project is independent, it will be acceptable, since maximum payback perio c) The firm will accept the first machine, since payback period is only 4 years and 8 d) The second machine has returns for 20 years, which means the same is ignored f
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rs e first machine will be 4,67 years or 4 years and 8 months e second machine will be 5.25 years or 5 years and 3 months od is 5 years, so the first machine is acceptable. months. Hence, it is less than the maximum acceptable pay period. for cash flows after the payback period is complete.
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a) Press A: NPV: -$85,000 + ($18,000 / 1.15)^1 +($18,000 / 1.15)^2+ .... =-$4,228.21 NPV is $-4,228.21 Press B: NPV is $2,588 Press C: NPV is $15,074 b) The project will only be accepted if the current NPV is positive. This means that p c) Since press C has a NPV of over $15,000, it is first in the power rankings. B is seco d) e)
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.+($18,000/1.15)^8 press B and C will be accepted.
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