You have purchased equipment for $100,000. The equipment will last 5 years. Assume you will depreciate the equipment to $0. The equipment will generate net income of $10,000 per year. You will calculate depreciation on the straight line basis. It is the only difference between net income and cash flows.
1. What is the accounting rate of return?
2. What is the payback period?
3. What is the estimated internal rate of return?
4. Your required rate of return is 14%. What is the NPV of the investment?
5. What is the profitability index of this investment (round to 3 digits)?