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Q4. 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
Q4. 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. Required: a) Determine the payback period for each machine. b) Which machine should the firm accept? Why?
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