Rieger International is attempting to evaluate the feasibility of investing $88,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the table below and the firm has a 11% cost of capital.

Year (t) After-tax cash flows

1 $20,000

2 $25,000

3 $25,000

4 $30,000

5 $35,000

a. Calculate the payback period (PP) for the proposed investment. (2 marks)

b. Determine the profitability index (PI) for the proposed investment. (2 marks)

c. What is the net present value (NPV) for the proposed investment. (2 marks)

d. Compute the internal rate of return (IRR) for the proposed investment. (2 marks)

e. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? (2 marks)