Said Company Is Considering the Purchase of a New Piece

Essay

Said Company is considering the purchase of a new piece of equipment for $45,000. The projected after-tax net income associated with this investment is $3,000 for each of the next three years. The company uses straight-line depreciation. The machine has a useful life of 3 years and no salvage value. Management of the company considers a 12% return on investment to be satisfactory.
Required:
1. What is the discounted payback period (in years) for this investment (rounded to one decimal place)? (The appropriate discount factors for 12% are as follows: Year 1 = 0.893; Year 2 = 0.797; and Year 3 = 0.712.)
2. What is the estimated net present value (NPV) of this proposed investment, rounded to the nearest whole number?