Exercise 173 (Part Level Submission)

Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $22,000 and $62,000, respectively. Yappy requires a 10% return on all new investments.

Present Value of an Annuity of 1 Period 8% 9% 10% 11% 12% 15% 8 5.747 5.535 5.335 5.146 4.968 4.487

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(a)

Compute each of the following: (Round cash payback period, profitability index and annual rate of return to 2 decimal places, e.g. 15.25.)

1. Cash payback period. years 2. Net present value. $ 3. Profitability index. 4. Internal rate of return. % 5. Annual rate of return. %

Part (b)

Indicate whether the investment should be accepted or rejected