Orange Company is considering the purchase of some equipment. The initial investment will be $42,000. The estimated useful life of the equipment will be 5 years, at which point it will have a zero salvage value.

The annual savings in cash operating costs will equal $12,500, and the company has a minimum required rate of return of 12 percent. Use straight-line depreciation, and ignore income taxes.

Required:

1. Compute Net present value
2. Compute Internal rate of return
3. Compute Payback period
4. Compute Accounting rate of return using initial investment
5. Should Orange purchase the equipment? Explain why or why not.
6. Which method is most accurate when deciding to accept or reject a project? Why? Discuss