The University of Toronto Faculty of
Applied Science and Engineering is considering the purchase of a special-purpose
machine for $60,000. It is expected to have a useful life of three years with no
terminal salvage value. The university’s controller estimates the following savings
in cash operating costs:

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YEAR AMOUNT 1 $28,000 26,000 2 3 Compute 24,000 1. Payback period. 2. Net present value if the required rate of return is 12 percent. 3. Internal rate of return. 4. Accounting rate of return (a) on the initial investment, and (b) on the "average" investment.