Evaluating a project by the payback period, rate of return on initial and average investment, and payback reciprocal. A proposal has been made by the Cutting Department at Tyler Wood Products, Inc., to replace a machine that has 8 years of useful life remaining with a more efficient model. Relevant annual operating costs are shown below.

The old machine cost $50,000 and has a book value of $20,000. The new machine costs $30,000 and has an estimated useful life of 6 years with no salvage value.
The current salvage value of the old equipment is equal to the cost of its removal.
Instructions 1. Determine the annual cash savings, and compute the payback period. Round off your answer to two decimal places.
2. Compute the rate of return on investment based on the initial investment and based on the average investment. Round off to the nearest hundredth of a percent.
3. Compute the payback reciprocal. Round off to the nearest tenth of a percent.

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Old Machine New Machine Labor $29,000 $15,000 Maintenance 7,000 5,000 Power 4,000 5,500 Depreciation 2,500 5,000