The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $149,500 and have a useful life of seven years. The banks controller has estimated that the automatic teller machines will save the bank $32,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

1. Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent.

2. Which of the following statements are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

• The net-present-value method is preferable to the payback method
• The payback method is preferable to the net-present-value method
• The payback period criterion fails to account for the time value of money
• If management uses the payback method, the investment will be approved only if the required payback period meets or exceeds the years calculated
• The cut-off value for the payback period is very much dependent on the bank's hurdle rate
• The cut-off value for the payback period has nothing to do with the bank's hurdle rate.