# Payback, NPV, Accounting rate-of-return -Bob's Big Burgers

Bob's Big Burgers is considering a proposal to invest in a speaker system that would allow its employees to service drive-through customers. The cost of the system (including installation of special windows and driveway modifications) is $30,000. Jenna Simon, manager of Bob's, expects the drive-through operations to increase annual sales by $25,000, with a 40% contribution margin ratio. Assume that the system has an economic life of six years, at which time it will have no disposal value. The required rate of return is 12%. Ignore taxes.

1) Compute the payback period. Is this a good measure of profitability?

2) Compute the NPV. Should Simon accept the proposal? Why or why not?

3) Using the accounting rate-of-return model, compute the rate of return in the initial investment.

https://brainmass.com/business/payback-npv-accounting-rate-of-return-bob-s-big-burgers-116398

#### Solution Preview

Bob's Big Burgers is considering a proposal to invest in a speaker system that would allow its employees to service drive-through customers. The cost of the system (including installation of special windows and driveway modifications) is $30,000. Jenna Simon, manager of Bob's, expects the drive-through operations to increase annual sales by $25,000, with a 40% contribution margin ratio. Assume that the system has an economic life of six years, at which time it will have no disposal value. The required rate of return is 12%. Ignore taxes.

1) Compute the payback period. Is this a good ...

#### Solution Summary

The NPV, Payback period and accounting rate-of-return of an investment in speaker system have been calculated.