Question

Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett...

Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $70,737 per year. Other information about this proposed project follows:

Initial investment $ 329,010
Useful life 6 years
Salvage value $ 48,000


Assume straight line depreciation method is used.    

Required:
1. Calculate the accounting rate of return for Bartlett. (Round your percentage answer to 2 decimal places.)



2. Calculate the payback period for Bartlett. (Round your answer to 2 decimal places.)

Business   Accounting   
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Homework Answers

Answer #1

Accounting rate of return = Net income*100/Initial Investment

= 70737*100/329010

Accounting rate of return = 21.50%

Payback period = Initial investment/Annual cash flow

Annual cash flow = (329010-48000/6)+70737 = 117572

Payback period = 329010/117572 = 2.80 years

                                         

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