FIN 486 Expect Success/uophelp.com FIN 486 Expect Success/uophelp.com | Page 21

FIN 486 Week 3 Individual Assignment (P10–2,P10–7, P10–
10, P10–14, P10–21, P11–1, P11–4, P11–7, P11–8, P11–9)

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P10–2 Payback comparisons 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 $14,000 and generates
annual after-tax cash inflows of $3,000 for each of the next 7 years.
The second machine requires an initial investment of $21,000 and
provides an annual cash inflow after taxes of $4,000 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 accept? Why? d. Do the
machines in this problem illustrate any of the weaknesses of using
payback? Discuss.
P10–7 Net present value: Independent projects Using a 14% cost
of capital, calculate the net present value for each of the independent
projects shown in the following table, and indicate whether each is
acceptable.

P10–10 NPV: Mutually exclusive projects Hook Industries is
considering the replacement of one of its old drill presses. Three
alternative replacement presses are under consideration. The relevant