Rent-to-Own Equipment Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Rent-to-Own's required rate of return is 8%.
a) Calculate the payback period of this project.
b) Calculate the net present value of this project.
c) Calculate the profitability index of this project.
d) Use Excel by following the formula as given in Chapter 9 for calculating the internal rate of return (IRR) and calculate it for this project.
e) Using your answers above, is this a financially-wise project to undertake? Why?