Using payback, NPV, and profitability index to make capital investment decisions ...
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Accounting
| Using payback, NPV, and profitability index to make capital investment decisions | |||||||||||
| Splash City is considering purchasing a water park in Omaha, Nebraska, for $1,910,000. The new facility will generate | |||||||||||
| annual net cash inflows of $487,000 for eight years. Engineers estimate that the facility will remain useful for | |||||||||||
| eight years and have no residual value. The company uses straight-line depreciation, and its stockholders | |||||||||||
| demand an annual return of 10% on investments of this nature. | |||||||||||
| Requirements | |||||||||||
| 1.) | Compute the payback, the NPV, and the profitability index of this investment. | ||||||||||
| 2.) | Recommend whether the company should invest in this project. | ||||||||||
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