Grove Corporation is considering the purchase of a new piece of equipment. The cost savings from the equipment would result in an annual increase in net income of $200,400. The equipment will have an initial cost of $1,200,400 and an 8-year useful life. The salvage value of the equipment is estimated to be $200,400. Groves cost of capital is 11%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1)

Note: Use appropriate factors from the PV tables.

Required:

1 What is the accounting rate of return?

2 What is the payback period?

3 What is the net present value?

4 What would the net present value be with a 13% cost of capital?

5 Based on the NPV calculations, what would be the equipment's internal rate of return?