=+18-25 KKK New equipment purchase, income taxes OBJECTIVES 3, 5 Samson’s Cranes plans to purchase a new crane. The crane has an estimated useful life of 10 years. The purchase price for the crane is $650000, the expected terminal value is $150000 and the estimated pre-tax cash flows for the crane are $125000 each year for 10 years. There is no anticipated change in working capital. Samson’s Cranes has an 8% after-tax required rate of return and a 30% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes using the initial investment and estimated terminal disposal value of the crane. Assume all cash flows occur at year-end except for initial investment amounts.

Required 1 Calculate:

(a) net present value,

(b) payback period and

(c) internal rate of return.