Hardwell printing company is considering the purchase of new electronic printing

Question

Hardwell printing company is considering the purchase of new electronic printing equipment. It would allow Hardwell to increase its net income by $68,742 per year. Other information about this project follows.

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Instructions I help Question 9 (of 10) Save & Exit Time remaning: 0:36:36 9 Harwell Printing Co. is considering the purchase of new electronic printing equipment. It would allow Harwell to increase its net income by $68,742 per year Other information about this proposed project follows: $342,000 Initial investment Useful life Salvage value 5 years S107,000

Explanation / Answer

1) Accounting rate of return = Net income*100/inital investment

                                             = 68742*100/342000

Accounting rate of return = 20.1%

2) Payback period = Initial investment/net annual cash flow

Annual cash flow = 68742+(342000-107000/5) = 115742

Payback period = 342000/115742 = 2.95 years

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