Lorax Corporation Is Considering the Acquisition of a New Machine

question 69

Essay

Lorax Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $30,000 before income taxes. The machine costs $100,000, has a useful life of five years, and no salvage value. Lorax uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8%.
Required:
A. Compute the machine's payback period.
B. Compute the machine's accounting rate of return on the initial investment.
C. Compute the machine's net present value.

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Definitions:

Fur Trade

The trading of animal pelts and furs between trappers, indigenous peoples, and merchants, which played a significant role in the colonial history and economic development of North America and Europe.

French and Indian Relations

Refers to the historical interactions between French colonists and Native American tribes, including alliances, trade, and conflicts, particularly during the colonial period in North America.

Way of Life

The manner in which people live, encompassing their habits, attitudes, moral standards, and cultural practices.

Pueblos

refers to both the indigenous people from the Southwestern United States known for their unique adobe dwellings and to the towns established by these people.