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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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