Subject: Business    / Finance

3. (TCO 6) 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

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