Cost of the equipment
$146,000
Reduced annual labor costs
$45,000
Estimated life of equipment
10 years
Terminal disposal value
$0
After-tax cost of capital
8%
Tax rate
28%
Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investment amounts.
1.
Calculate (a) net present value, (b) payback period, (c) discounted paybackperiod, and (d) internal rate of return.
2.
Compare and contrast the capital budgeting methods in requirement 1.
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