Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash inflows are expected to be $25,000 and $65,000, respectively. Yappy requires a 10% return on all new investments.

Part (a): Compute each of the following.

1: Payback period

2: Net present value

3: Profitability index

4: Internal rate of return

5: Accounting rate of return

(b): Indicate whether the investment should be accepted or rejected.