Payback, Internal Rate of Return

Automation of the shipping department at Computer Mart would save labor costs.  Details about the automation equipment are as follows:

Purchase price of automation equipment              $1,200,000
Net annual cash savings provided by the
new equipment                                         $200,000
Estimated service life of equipment                   10 years
Required rate of return                               12%

A. Compute the payback period for the automation equipment.  If Computer mart requires a payback of five years or less, would you recommend purchase of the equipment?  Explain your answer.

B. Compute the internal rate of return on the equipment.  Use straight-line depreciation based on the equipment's estimated service life.  Would you recommend that the equipment be purchased? Explain your answer.