Moore Company is considering a capital investment of $180,000 in new equipment. The machinery 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 $10,000 and $20,000, respectively. Moore requires either an 8% rate of return, or a payback period of 8 years.
Required: Compute the following and for each capital budgeting technique
• state whether the project should be accepted or rejected based on the results of that method.
• Show your computations
a) annual rate of return
b) cash payback period
c) net present value
d) profitability index
e) internal rate of return.