Beacon Manufacturing, Inc. is planning to buy a new cutting machine. The machine costs $125,000, has an estimated life of ten years and no salvage value. The machine is expected to have the following impact:

Increment revenue............................................................................................ $30,000

Incremental expenses:

Expenses other than depreciation.................................................................... (8,000)

Straight-line depreciation............................................................................... (12,500)

Incremental net income..................................................................................... $9,500

All revenue and expenses other than depreciation will be received or paid in cash. Compute the following for this proposal:

1. What is the annual net cash flow expected from the cutting machine investment? $____________

1. What is the expected payback period of the cutting machine investment? ______ years

2. What is the expected return on average investment associated with the cutting machine? ____________%

3. What is the net present value of the cutting machine discounted at an annual rate of 10%, if the present value of a ten-year $1 annuity discounted at 10% is 6.145? $____________

4. What is the net present value of the cutting machine discounted at an annual rate of 20%, if the present value of a ten-year $1 annuity discounted at 20% is 4.192? $____________