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 salvage value. 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?



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  • CreatedFebruary 07, 2014
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