*Problem 13-29A

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		$80,800		Cost		$38,560
Accumulated depreciation		$40,400		Estimated useful life		8 years
Remaining life		8 years		Salvage value in 8 years		$4,592
Current salvage value		$10,600		Annual cash operating costs		$29,600
Salvage value in 8 years		$0
Annual cash operating costs		$36,000

Depreciation is $10,100 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 $4,592.

Determine the cash payback period (Ignore income taxes). (Round answer to 3 decimal places, e.g. 15.275.)

Cash payback period

years

Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 15.25%.)

Annual rate of return

%

Calculate the net present value assuming a 18% rate of return (Ignore income taxes). (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Click here to view PV table.

Net present value

$

Should the company purchase the new equipment?