Hodges Company is planning to purchase a machine costing $117,000 to use in their Mixing Department. Management determined that this machine has a 10-year life with an estimated salvage value of $5,000. Depreciation for tax purposes is $9,360 for Year 1.

The estimated annual cash savings from using this machine is $22,000. The company’s cost of capital is 14 percent and its income tax rate, including state income tax, is 45 percent.

Required:

a. Calculate the annual aftertax net cash benefits of this machine for Year 1.

b. Calculate the net present value of this investment if the annual aftertax cash benefits of this machine were $20,000 each year for the machine’s life.

c. Calculate the payback period assuming that the annual aftertax cash benefits of this machine were $20,000 each year for the machine’s life.