Q8

A company has an opportunity to invest in a new technology that costs $400,000. The technology will have a useful life of 5 years and no salvage value. It is expected to save the company $110,000 per year in operating costs. The company’s tax rate is 30% and its required rate of return is 14%. The present value factors for 14% are:

Year	PV Factor
1	0.877
2	0.769
3	0.675
4	0.592
5	0.519

Requirements:

1. Calculate the annual after-tax savings from the investment.
2. Determine the present value of these savings.
3. Compute the NPV of the investment.
4. Calculate the payback period.
5. Should the company invest in the new technology? Justify your answer.