Tam Company is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in cash operating costs. The equipment"s estimated useful life is 10 years, with no salvage value, and would be depreciated by the straight-line method. Tam"s required rate of return is 12%.
1. The net present value of this investment is:
A) $5,760
B) $6,440
C) $12,200
D) $13,000
2. The payback period of this investment is:
A) 4 years
B) 1 year
C) 10 years
D) 5 years
3. The simple rate of return of this investment is:
A) 8%
B) 20%
C) 12%
D) 10%