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ABC Corp is evaluating the purchase of a new manufacturing equipment costing $450,000. The equipment will be depreciated using the straight-line method over 8 years

ABC Corp is evaluating the purchase of a new manufacturing equipment costing $450,000. The equipment will be depreciated using the straight-line method over 8 years with no salvage value. It requires an initial working capital investment of $50,000. The annual cash flows expected from this equipment are as follows:

Year

Cash Flow

1

$70,000

2

$80,000

3

$90,000

4

$100,000

5

$110,000

6

$120,000

7

$130,000

8

$140,000

Requirements: (a) Calculate the payback period (PP). (b) Calculate the net present value (NPV) if the discount rate is 10%. (c) Calculate the internal rate of return (IRR). (d) Determine the accounting rate of return (ARR). (e) Should ABC Corp invest in the equipment based on the above calculations?

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