Yesterday 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. Yesterday requires a 10% return on all new investments.

Present Value of an Annuity of 1

Period8%9% 10% 11% 12% 15%

85.7475.5355.3355.1464.9684.487

(a)Compute each of the following:

1.Cash payback period.

2.Net present value.

3.Profitability index.

4Internal rate of return.

5.Annual rate of return.

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