The ACE Manufacturing company expects to buy a new lathe which will have a lifetime of five years. The lathe will cost $10,000. and will produce an annual income of $2,500 per year throughout its lifetime. It is anticipated that the cost of removal of the lathe will exceed its value as scrap at the end of the useful life of $2,500. MARR and the external rate of return are both assumed to be 10%.
1. Calculate the internal rate of return for this investment.
2. Calculate the payback period for this investment.