Payback Period, Net Present Value Analysis, and Qualitative Considerations

The plant manager of Jurassic Industries is considering the purchase of new automated assembly equipment. The new equipment will cost $320,000. The manager believes that the new investment will result in direct labor savings of $40,000 per year for 10 years.

a. What is the payback period on this project? fill in the blank 1 years

b. What is the net present value, assuming a 12% rate of return? Use the table provided below. If required, enter a negative net present value using a minus sign.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

Net present value: $fill in the blank 2

c. The manager's analysis should also consider all of the following items except:

Costs for the machinery except those required for installation.Higher quality and flexibility that can transfer into greater sales volume and better pricing.Tax effects.Learning curve costs for the new technology.