Tippit-the-Strong Company is looking at a new sausage system with an installed cost of $280,000. This asset will be depreciated according to MACRS 5 years over the projects three-year life, at the end of which the sausage system can be sold for $77,000. The sausage system will create annual savings of $195,000 (before taxes and depreciation), and the system requires an initial investment in net working capital of $36,000. The tax rate is 35 percent.

What is the discounted payback period at the 22 percent discount rate? Do you accept this project, if you require the project pays back in two years? Explain