In: Accounting
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
Part B Projected accepted
As NPV Positive
Profitability index grater than 1
Pay back period less than 8 years