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Payback Period and Average Rate of Return for Midnight Corp.

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The management of midnight Corp. is considering the purchase of a new machine costing $1,015,000. In addition to the forgoing information use the following data in determining the acceptability of this situation:

Year Income from Operations Net cash flow
1 $25,000 $150,000
2 25,000 195,000
3 50,000 225,000
4 35,000 260,000
5 40,000 185,000
6 50,000 215,000

Cash payback period for investment? _________Years
Average rate of return for this investment? ________Years

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Solution Summary

The solution explains how to determine the payback period and the average rate of return.

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Payback period is the time taken to recover the initial investment. In 5 years we recover = ...

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