Howell Company is considering the purchase of some equipment. The initial investment will be $80,000. The estimated useful life of the equipment will be 5 years, at which point it will have a zero terminal salvage value. The annual savings in cash operating costs will equal $19,000, and the company has a minimum desired rate of return of 12%. Use straight- line depreciation and ignore income taxes.
Compute:
a. Net present value
b. Payback period
c. Accounting rate of return using initial investment

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The Answer of Howell Company is considering the purchase of some equipment. The initial investment will be $80,000. The estimated useful life of the equipment will be 5 years, at which point it will have a zero terminal salvage value. The annual savings in cash operating costs will equal $19,000, and the company has a minimum desired rate of return of 12%. Use straight- line depreciation and ignore income taxes.
Compute:
a. Net present value
b. Payback period
c. Accounting rate of return using initial investment

Howell Company Is Considering the Purchase of Some Equipment