Evaluate an investment using all four methods (Learning Objectives 2, 4)

Zippi manufactures motorized scooters in Oakland, California. The company is con¬ sidering an expansion. The plan calls for a construction cost of $5,200,000. The expansion will generate annual net cash inflows of $675,000 for ten years. Engineers estimate that the new facilities will remain useful for ten years and have no residual value. The company uses straight-line depreciation. Its owners want payback in less than five years and an ARR of 8% or more. Management uses a hurdle rate of 10% on investments of this nature.

Requirements 1. Compute the payback period, the ARR, the NPV, and the IRR of this investment.
2. Recommend whether the company should invest in this project.