A business is considering investing in a new piece of equipment. Information about the Equipment:

Life of equipment: 10 years

Cost of equipment: $600,000

Equipment salvage value (in 10 years): $ 10,000

The equipment will require major repairs in year 8 at a cost of $40,000. Cost of capital of 10%.

Information about the annual financial effect of the new equipment over the ten years:

Annual Income (all sales are cash sales): $130,000

Expenses: Annual expenses (paid by cash): $ 30,000

Other annual expenses (depreciation): $ 59,000 89,000

____________

Annual increase in net income: $ 41,000

REQUIRED:

1. Calculate the payback period
2. Calculate net present value
3. Identify and briefly discuss other factors to be considered.