Santana Company is considering investing in a project that will cost $151,000 and have no salvage value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows of $40,000 each year. The company requires a 9% rate of return and uses the following compound interest table:

Present Value of an Annuity of 1Period6%8%9%10%11%12%15%54.212 3.9933.890 3.7913.6963.6053.352

(a)

Your answer is correct.

Compute the net present value and the profitability index of the project. (Round profitability index to 2 decimal places, e.g. 15.25.)

Net present value$

Profitability index

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(b)

Compute the internal rate of return on this project.

Internal rate of return

%

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