The management of Niagra National Bank is considering an investment in automatic teller machines. The machines would cost $170,200 and have a useful life of seven years. The banks controller has estimated that the automatic teller machines will save the bank $37,000 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

2. 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. (Negative amounts should be indicated by a minus sign.)

3. Which of the following statements are true? (You may select more than one answer.)

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