Edward Marina rents pontoon boats to customers It has the opportunity to purchase an additional pontoon boat for $32,000 it has an expected useful life of four years and no salvage value Edward Marina uses straight line depreciation Expected rental revenue for the boat is $10,000 per year Required ...

a 32000 10000 32 years b Depreciation expense 32000 4 8000 per year Incre ...

Edward Marina rents pontoon boats to customers. It has the opportunity to purchase an additional pontoon boat

Question:

Edward Marina rents pontoon boats to customers. It has the opportunity to purchase an additional pontoon boat for $32,000; it has an expected useful life of four years and no . Edward Marina uses straight-line depreciation. Expected rental revenue for the boat is $10,000 per year.

Required
a. Determine the payback period.
b. Determine the unadjusted rate of return based on the average cost of the investment.
c. Assume that the company’s desired rate of return is 20 percent. Should Edward Marina purchase the additional boat?

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...