Bigsby LLC wants to buy a CAD machine but needs your help in analyzing a proposal:

Cost $270,000

Salvage value in 8 years $10,000

Annual cash operating savings for 8 years (end of year) $50,000

Estimated useful life in years 8

Minimum desired rate of return 10%

The Bigsby uses straight-line depreciation method for financial reporting. The cash savings from operating the new CAD machine are $50,000. Depreciation expense is not included.

REQUIRED:

A) Compute the net present value of the investment.

B) Compute the payback period.

C) Compute the accounting rate of return using the initial required investment.