Question: Soviet Services has a five-year maximum acceptable payback period. The firm is considering purchasing a new washing machine and must choose between two alternatives. The

Soviet Services has a five-year maximum acceptable payback period. The firm is considering purchasing a new washing machine and must choose between two alternatives. The first machine, IntelWash, requires an initial investment of $25,000 and generates annual after-tax cash inflows of $6,500 for each of the next eight years. The second machine, KwikWash, requires an initial investment of $75,000 and provides an annual cash inflow after taxes of $9,500 for 15 years.

a. Determine the payback period for IntelWash and KwikWash.

b. Comment on the acceptability of the machines, assuming they are independent projects.

c. Which machine should Soviet Services purchase? Why?

d. Do the machines in this problem illustrate any of the weaknesses of using payback? Discuss.

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