Question: (a) A firm considers purchasing a $20,000 machine and expects to realize annual operating savings of $4,000 per year for the first 5 years and $8,000 per year from the 6th to the 1 0th year inclusive. The company's tax rate is 40 percent and its cost of capital is 12 percent. Capital cost allowances on a declining balance are taken at a rate of 30 percent with no salvage value anticipated. For this investment, determine:

(i) The net present value,

(ii) The internal rate of return, and

(iii) The payback period.

(b) If the machine in part (a) can be salvaged at the end of its useful life for $ 1 ,000, recalculate the net present value of the investment.

(c) If the company decided to use straight-line depreciation, and if this method were allowable for tax purposes, what would the net present value of the project be, assuming no salvage value?

(d) Calculate the net present value as under part (c), but with a $ 1,000 salvage value at the end of the useful life.