Investment evaluation

Harmony Company had a number of potential capital investments. Because these projects vary in nature, initial investment, and time horizon, Harmony's management is finding it difficult to compare them.

Project 1: Retooling Manufacturing Facility

This project would require an initial investment of $2,700,000. It would generate $975,000 in additional cash flow each year. The new machinery has a useful life of seven years and a salvage value of $600,000.

• Determine the projects accounting rate of return and payback period.
• Using a discount rate of 10%, calculate the net present value.
• Determine the profitability index