Frooti 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 calculated 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. Frooti requires a 9% 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

Required

a) Calculate each of the following:

1. Cash payback period.

2. Net present value.

3. Profitability index.

4 Internal rate of return.

5. Annual rate of return.

b) Indicate whether the investment should be accepted or rejected.

Please provide explanations