XYZ Corporation is considering purchasing a new piece of equipment for its manufacturing process. The equipment has a purchase price of $200,000 and is expected to have a useful life of 5 years. The equipment is expected to generate annual cash inflows of $60,000 for the first 3 years and $40,000 for the remaining 2 years. The salvage value of the equipment at the end of its useful life is expected to be $20,000. The company has a required rate of return of 10%.

a) Calculate the payback period for the equipment purchase.
b) Calculate the net present value (NPV) of the equipment purchase.
c) Based on the calculations in parts a) and b), should XYZ Corporation purchase the equipment? Explain your answer.

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The detailed answer for the above question is provided below a The payback period is the length of time required to recover the initial investment in ... View the full answer