Refer to the Sikes Hardware information in E12-18. Compute the ARR for the investment.
In E12-18 Sikes Hardware is adding a new product line that will require an investment of $1,500,000. Managers estimate that this investment will have a 10-year life and generate net cash inflows of $315,000 the first year, $285,000 the second year, and $240,000 each year thereafter for eight years. The investment has no residual value. Compute the payback period.