**Answer:**

* For the machine investment decision:

+ Payback period: 1.68 years

+ Unadjusted rate of return: 26.27%

* For the equipment investment decision:

+ Payback period: 1.83 years

+ Unadjusted rate of return: 29.71%

**Explanation:**

<u>*** For the machine investment decision:**</u>

**Payback calculation:**

+ Incremental in yearly cashflow = ( Increase in revenue - Increase in operating expenses ) x ( 1 - tax rate) + Tax shield from increase in depreciation (which is Depreciation in one year x Tax rate) = (6080 - 800 ) * 0.8 + (7980/3)*0.2 = $4756

+ Payback period = Increase in yearly cashflow / Initial investment = 7980 /4756 = 1.68 years

**Unadjusted rate of return:**

+ Increamental profit in one-year= ( Increase in revenue - Increase in operating expenses - Increase in depreciation) x ( 1 - tax rate) = (6080 - 800 - 7980/3) * 0.8 = $2096

+ Unadjusted rate of return = Increamental profit in one-year / Initial investment = 2096 / 7980 = 26.27%

<u>*** For the equipment investment decision:**</u>

**Payback calculation:**

+ Incremental in yearly cashflow = ( Increase in revenue - Increase in operating expenses ) x ( 1 - tax rate) + Tax shield from increase in depreciation (which is Depreciation in one year x Tax rate) = (8300 - 2260 ) * 0.8 + (9720/4)*0.2 = $5318

+ Payback period = Increase in yearly cashflow / Initial investment = 9720 /5318 = 1.83 years

**Unadjusted rate of return:**

+ Increamental profit in one-year= ( Increase in revenue - Increase in operating expenses - Increase in depreciation) x ( 1 - tax rate) = (8300 - 2260 - 9720/4) * 0.8 = $2888

+ Unadjusted rate of return = Increamental profit in one-year / Initial investment = 2888 / 9720 = 29.71%