Briar Corp is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in cash flow of $200,000. The equipment will have an initial cost of $1,200,000 and have an 8 year life. The salvage value of the equipment is estimated to be $200,000. The hurdle rate is 8%. Ignore income taxes.

Answer the following:

a. What is the accounting rate of return?

b. What is the payback period?

c. What is the net present value?

d. What would the net present value be with a 12% hurdle rate?

e. Based on the NPV calculations, in what range would the equipment's internal rate of return fall?