Jefferson Ltd.is considering the acquisition of new production equipment.If purchased, the new equipment would cost $1,850,000.Installation and testing costs would be $35,000 and $25,000 respectively.Once operational, the equipment will cause an increase in working capital of $120,000.The new equipment is expected to generate increased annual sales of $720,000.Variable costs to operate the machine are estimated at 42% of sales and annual fixed costs would be lowered by $75,000.The equipment has an estimate 6 year life and a salvage value of $90,000.The company requires an 11% return on its investments.Ignore income taxes.Required:
a.Compute the net present value.
b.Compute the internal rate of return.
c.Determine the payback period of the investment.

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The Answer of Jefferson Ltd.is considering the acquisition of new production equipment.If purchased, the new equipment would cost $1,850,000.Installation and testing costs would be $35,000 and $25,000 respectively.Once operational, the equipment will cause an increase in working capital of $120,000.The new equipment is expected to generate increased annual sales of $720,000.Variable costs to operate the machine are estimated at 42% of sales and annual fixed costs would be lowered by $75,000.The equipment has an estimate 6 year life and a salvage value of $90,000.The company requires an 11% return on its investments.Ignore income taxes.Required:
a.Compute the net present value.
b.Compute the internal rate of return.
c.Determine the payback period of the investment.