Question

In: Accounting

Exercise 173 (Part Level Submission) Yappy Company is considering a capital investment of $320,000 in additional...

Exercise 173 (Part Level Submission)

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 $22,000 and $62,000, respectively. Yappy requires a 10% return on all new investments.

Present Value of an Annuity of 1
Period 8% 9% 10% 11% 12% 15%
8 5.747
5.535
5.335
5.146
4.968 4.487

[Collapse question part]

(a)

Compute each of the following: (Round cash payback period, profitability index and annual rate of return to 2 decimal places, e.g. 15.25.)

1. Cash payback period.
years
2. Net present value. $
3. Profitability index.
4. Internal rate of return.
%
5. Annual rate of return.
%

Part (b)

Indicate whether the investment should be accepted or rejected

Solutions

Expert Solution

Part B Projected accepted

As NPV Positive

Profitability index grater than 1

Pay back period less than 8 years


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