Three Rivers Company runs clothing stores in the Pittsburgh area. Three Rivers management estimates that if it invests $250,000 in a new computer system, it can save $75,000 in annual cash operating costs. The system has an expected useful life of 10 years and no terminal Disposal value. The required rate of return is 8%. Ignore income taxes and assume all cash flows occur at year-end except for initial investment amounts to calculate the following:

1.Net present value

2.Payback period

3.Discounted payback period

4.Internal rate of return (using the interpolation method)

5.Accrual accounting rate of return based on the net initial investment (assume straight-line depreciation)

6.What other factors should Three Rivers consider in deciding whether to purchase the new computer system?

7.Should they purchase the new system? Why or why not?