Diamondback, Inc., is a manufacturer of western hats. The company has an opportunity to expand production by purchasing a new automatic hat bander. The bander costs $200,000 and is fully depreciable for tax purposes using the straight-line method over a four-year life. The machine will have no salvage value. No additional working capital is required. The bander will result in cost savings of $90,000 per year. The company has a tax rate of 40 percent.

Compute the following investment evaluation measures for the bander:

a. Payback period.

b. Internal rate of return (using a calculator, computer, or trial and error and interpolation).

c. Accounting rate of return on the initial investment.