Magna Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment:
| Old Equipment |
New Equipment |
| Cost |
$81,040 |
Cost |
$38,080 |
| Accumulated depreciation |
$40,800 |
Estimated useful life |
8 years |
| Remaining life |
8 years |
Salvage value in 8 years |
$4,728 |
| Current salvage value |
$10,000 |
Annual cash operating costs |
$29,200 |
| Salvage value in 8 years |
$0 |
| Annual cash operating costs |
$35,900 |
Depreciation is $10,130 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value $4,728. Warning
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Determine the cash payback period (Ignore income taxes). (Round answer to 3 decimal places, e.g. 15.225.)
Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.)
Calculate the net present value assuming a 16% rate of return (Ignore income taxes). (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)