Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required: 1. Jeffrey

Question:

Each of the following scenarios is independent. All cash flows are after-tax cash flows.

Required:

1. Jeffrey Akea has purchased a tractor for $62,500. He expects to receive a net cash flow of $15,625 per year from the investment. What is the payback period for Don?

2. Roger Webb invested $600,000 in a laundromat. The facility has a 10-year life expectancy with no expected salvage value. The laundromat will produce a net cash flow of $180,000 per year. What is the accounting rate of return? Use original investment for the computation.

3. Aiddy Markus has purchased a business building for $700,000. She expects to receive the following cash flows over a 10-year period:

Year 1: $87,500

Year 2: $122,500

Years 3–10: $175,000

What is the payback period for Aiddy? What is the accounting rate of return (using average investment and assuming straight-line depreciation over the 10 years)?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...