The latest manufacturing equipment is purchased at a cost of $800,000. As a result, annual cash revenues are expected to increase by $345,000; annual cash expenses are expected to increase by $162,000; straight-line depreciation is used; the asset has a seven-year life; the salvage value is $100,000. Assume the company is in the new 21% corporate tax bracket.

1. Determine the accounting rate of return? (round to the nearest %)

2. Determine the payback period?

3. Determine the NPV assuming a minimum required rate of return of 8%?

Using these formulas:

Accounting Rate of Return: (Average incremental revenue)-(Average incremental expenses (including depreciation and taxes)) / initial investment

Payback Period: Initial Investment / Annual after-tax cash inflow