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Investment Proposals of Madison Manufacturing

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Madison Manufacturing Company is considering the following investment proposal:

Initial investment:
Depreciable assets (straight-line) $30,000
Working capital 4,000
Operations (per year for 4 years):
Cash receipts $20,000
Cash expenditures 11,000
Disinvestment:
Salvage value of equipment $2,000
Recovery of working capital 4,000

A. The investment's payback period in years (rounded to two decimal points) is:
1.50
1.70
3.33
3.78
B. The investment's accounting rate of return on the original investment is:
5.88 percent
8.33 percent
11.11 percent
50.00 percent

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Solution Summary

This response evaluates investment, the payback period, and the rate of return.

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Part A:
Cash investment in year 0= invetsment in Assets plus working capital = ...

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