Part A

A company invests $800,000 in plant assets with an estimated 10-year service life and no salvage value. These assets contribute $120,000 to annual net income when depreciation is computed on a straight-line basis.

Compute the payback period.

Part B

Dougs Conveyor Systems, Inc., is considering two investment proposals (1 and 2). Data for the two proposals are presented here.

	1			2
Cost of investment	$	90,000		$	65,000
Estimated salvage value		10,000			15,000
Average estimated net income		20,000			8,000

Calculate the return on average investment for both proposals.

Part C

Landrys Tool Supply Corporation is considering purchasing a machine that costs $100,000 and will produce annual cash flows of $40,000 for five years. The machine is expected to be sold at the end of five years for $12,000.

What is the net present value of the proposed investment? Landrys requires a 15 percent return on all capital investments using the present value tables in Exhibits 26-3 and 26-4. (Round your "PV factors" to 3 decimal places.)