The management of troquois National Bank is considering an investment in automatic teller machines.

The machines would cost \($124,200\) and have a useful life of seven years. The bank's controller has estimated that the automatic teller machines will save the bank \($27,000\) after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

Required: 

1. Compute the payback period for the proposed investment.
2. Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: {a) 10 percent, (b) 12 percent, and (c) 14 percent.
3. What can you conclude from your answers to requirements ( 1 ) and (2) about the limitations of the payback method?