Gravina Company is planning to spend $8,000 for a machine that it will depreciate on a straight-line basis over 10 years with no salvage value. The machine will generate additional cash revenues of $1,600 a year. Gravina will incur no additional costs except for depreciation. Its income tax rate is 30%. (For parts 3 and 4 of this question use Table 1 and/or Table 2.

1. What is the payback period of the proposed investment under the assumption that the cash inflows occur evenly throughout the year?

2. What is the accounting (book) rate of return (ARR) based on the initial investment outlay?

3. What is the maximum amount that Gravina Company should invest if it desires to earn an internal rate of return (IRR) of 14%?

4. What is the minimum annual (pretax) cash revenue required for the project to earn a 14% internal rate of return?

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