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

Question

Bartlett Car Wash Co. is considering the purchase of a new facility. It would allow Bartlett to increase its net income by $101,248 per year. Other information about this proposed project follows: $468,740 Initial investment Useful life Salvage value 9 years $ 47,000 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.) Acounting Rate of Return 1% 2. Calculate the payback period for Bartlett. (Round your answer to 2 decimal places.) yback Period

Explanation / Answer

Calculation of average rate of return

Average rate of return = Average net profits/initial investment

Initial investment = $468,740

Depreciation = (468,740-47,000)/9

$46,860

1

Average rate of return = ($101,248-$46,860)/468,740

11.60%

Calculation of payback period

Net income per year

$101,248

2

Payback period = initial investment/Net income per year
($468,740/$101,248)

4.63 Years

Calculation of average rate of return

Average rate of return = Average net profits/initial investment

Initial investment = $468,740

Depreciation = (468,740-47,000)/9

$46,860

1

Average rate of return = ($101,248-$46,860)/468,740

11.60%

Calculation of payback period

Net income per year

$101,248

2

Payback period = initial investment/Net income per year
($468,740/$101,248)

4.63 Years

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