Diamond Company is considering purchasing a machine that would cost $756,000 and have a useful life of 8 years. The machine would reduce cash operating costs by $132,632 per year. The machine would have a salvage value of $151,200 at the end of the project.

Compute:

Internal rate of return

Profitability index

Payback period

Simple rate of return

Should the company purchase the machine? Why or why not?