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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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    https://brainmass.com/business/accounting-rate-of-return/accounting-rate-of-return-payback-period-232069

    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

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