Magna Inc. is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment.

Old Equipment				New Equipment
Cost		$81,600		Cost		$38,800
Accumulated depreciation		$41,000		Estimated useful life		8 years
Remaining life		8 years		Salvage value in 8 years		$4,792
Current salvage value		$10,100		Annual cash operating costs		$29,900
Salvage value in 8 years		$0
Annual cash operating costs		$36,000

Depreciation is $10,200 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value $4,792.

1. Determine the cash payback period (Ignore income taxes).

2.Calculate the annual rate of return

3. Calculate the net present value assuming a 17% rate of return (Ignore income taxes)

4. Should the company purchase the new equipment?