New equipment purchase, income taxes. Innovation, Inc. is considering the purchase of a new industrial electric motor to improve efficiency at its Fremont plant The motor has an estimated useful life of 5 years. The estimated pretax cash flows for the motor are shown in the table that follows, with no anticipated change in working capital. Innovation has a 12% after-tax required rate of return and a 40% income tax rate. Assume depreciation is calculated on a straight-line basis for tax purposes. Assume all cash flows occur at year-end except for initial investmentamounts.

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Relevant Cash Flows at End of 2 Each Year 3 4 $(62,500) Initial motor investment Annual cash flow from operations (excluding the depreciation effect) $31,250 $31,250 $31,250 $31,250 Cash flow from terminal disposal of motor $ 8,000 Calculate (a) net present value, (b) payback period, and (c) internal rate of return. 1. Compare and contrast the capital budgeting methods in requirement 1. 2. 3.