Automation of the shipping department at Computer Mart would save labor costs. Details about the automation equipment are as follows:

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A. Compute the payback period for the automation equipment. If Computer Mart requires a payback of five years or less, would you recommend purchase of the equipment? Explain your answer.
B. Compute the internal rate of return on the equipment. Use straight-line depreciation based on the equipment's estimated service life. Would you recommend that the equipment be purchased? Explain your answer.

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Purchase price of automation equipment Net annual cash savings provided by the new equipment Estimated service life of equipment Required rate of return $1,200,000 $200,000 10 years 12%