ALGS Ltd. wants to purchase a new machine for $30,000, excluding $1,500 in installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,000 and ALGS Ltd. expects to sell it for that amount. The new machine would decrease operating costs by $8,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a five-year period with no salvage value.

• Determine the cash payback period. (Ignore income taxes.)
• Calculate the annual rate of return.
• Calculate the net present value assuming a 10% rate of return. (Ignore income taxes.)
• State your conclusion on whether the company should purchase the new machine.