Magna Inc. 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 $10,000 per year for the old equipment. The straight-line depreciation method would be used for the new equipment over an eight-year period with salvage value of $5,000.
Instructions
(a) Determine the cash payback period.
(b) Calculate the annual rate of return.
(c) Calculate the net present value assuming a 16% rate of return.
(d) State your conclusion on whether the company should purchase the new equipment.

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Old Equipment New Equipment $38,000 8 years $ 5,000 Cost Accumulated depreciation Remaining life Current salvage value Salvage value in 8 years Annual cash operating costs $80,000 $40,000 8 years $10,000 Cost Estimated useful life Salvage value in 8 years Annual cash operating costs$30,000 $36,000