Q1. Assume Newco is deciding between two machines (Machine A and Machine B) in order to add capacity to its existing plant. The company estimates the cash flows for each machine to be as follows:

Figure 11.2: Expected after-tax cash flows for the new machines

Calculate the payback period of the two machines using the above cash flows and decide which new machine Newco should accept. Assume the maximum payback period the company establishes is five years.

Q2. Using question 1 above, determine the discounted payback period for Machine A and Machine B, and determine which project Newco should accept. As calculated previously, Newco's cost of capital is 8.4%.

Q3. Using the cash flows in the previous questions, calculate the NPV for each machine and decide which project Newco should accept. As calculated previously, Newco's cost of capital is 8.4%.

Q4. Assume once again that Newco needs to purchase a new machine for its manufacturing plant. Newco has narrowed it down to two machines that meet its criteria (Machine A and Machine B), and now it has to choose one of the machines to purchase. Further, Newco has assumed the following analysis on which to base its decision:

Q5. Company C is planning to undertake another project requiring initial investment of $60 million and is expected to generate $9 million in Year 1, $14 million in Year 2, $15 million in year 3, $18 million in Year 4 and $20 million in Year 5. Calculate the payback value of the project.