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Accounting Rate of Return, Payback Period

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Waterman Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $16,000 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation.

A. The project's accounting rate of return (rounded to the nearest percent) on the initial investment is:
8 percent
10 percent
42 percent
75 percent

B. The company uses straight-line depreciation. The investment's payback period in years (rounded to two decimal points) is:
2.00
2.13
2.40
3.00

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Solution Preview

See attached Excel file.

Waterman Publishing is considering the purchase of a used printing press costing $38,400. The printing press would generate a net cash inflow of $16,000 a year for 3 years. At the end of 3 years, the press would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line ...

Solution Summary

Calculates accounting rate of return and payback period for printing press.

$2.19