K&M International is considering modernizing its production facility by investing in new equipment and selling the old equipment. The following information has been collected on this investment:

Depreciation is $20,000 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over a four-year period with salvage value of $10,000.
Instructions
(a) Determine the cash payback period (ignore income taxes).
(b) Calculate the annual rate of return.
(c) Calculatethenetpresentvalueassuminga16%rateofreturn.
(d) State your conclusion on whether the company should purchase the new equipment.

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Old Equipment New Equipment $160,000 Cost $80,000 Estimated useful life Cost Accumulated depreciation Remaining life Current salvage value Salvage value in 4 years Annual cash operating costs $80,000 4 years $10,000 $25,000 4 years Salvage value in 4 years s 30,000Annual cash operating costs $ 0- 40,000