Russell Company is considering an investment project. Estimates are as follows:

YEAR INCOME FROM OPERATIONS NET CASH FLOWS

1 $ 61,400 $135,000

2 51,400 125,000

3 36,400 110,000

4 26,400 100,000

5 3,600 70,000

TOTAL $ 179,200 $ 540,000

An investment of $368,000 is needed and straight-line depreciation will be used, and a residual value of $18,000 is expected. A rate of 12% for purposes of the net present value analysis.

Instructions Compute the following: (SHOW ALL YOUR WORK)

1. The Cash Payback Period

2. Average Rate of Return (Round to one decimal place)

3. Net Present Value (Round present values to the nearest dollar)

4. Present Value Index