Use the following information to determine the a. Payback Period, and b. Net Present Value of a proposed new cleaning system at the Jefferson Laundry.

Estimated Life of new cleaning system 10 Years

Cost of cleaning system $800,000

Annual net cash flow from cleaning system $160,000

Scrap Value of Cleaning System in Year 10 $ 50,000

Jefferson uses at 10% rate of return for evaluating capital projects. The factors for calculating present values are as follows:

Present Value of an Annuity at 10% for 10 years 6.1450

Present Value of a Single Sum due in 10 years .3855

a. Payback Period

b. Net Present Value of a proposed new cleaning system at the Jefferson Laundry.

c. Which of the preceding methods provides a better measure of the projects profitability? Why?