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The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines...

The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines would cost $129,250 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save the bank $27,500 after taxes during each year of their life (including the depreciation tax shield). The machines will have no salvage value.

1. Compute the payback period for the proposed investment. in years.

2. Compute the net present value of the proposed investment assuming an after-tax hurdle rate of: (a) 10 percent, (b) 12 percent, and (c) 14 percent.

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Answer #1

PV of cash flows is calculated by multiplying the PV factor with the cash flow

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