Montana Company is considering a capital investment of $480,000 in additional equipment. The new equipment is expected to have a useful life of 10 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 $30,000 and $78,000, respectively. Montana requires a 9% return on all new investments.

Present Value of an Annuity of 1

Period 8% 9% 10% 11% 12% 15%

10 6.710 6.418 6.145 5.889 5.650 5.019

Instructions

(a) Compute 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.