Question: Computing the payback period and unadjusted rate of return for the same investment opportunity Gunter Marina (Guntersville) rents pontoon boats to customers. It has the

Computing the payback period and unadjusted rate of return for the same investment opportunity Gunter Marina (Guntersville) rents pontoon boats to customers. It has the opportunity to purchase an additional pontoon boat for $30,000; it has an expected useful life of four years and no salvage value. Guntersville 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 30 percent. Should Guntersville purchase the additional boat?

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a 30000 10000 3 years b Depreciation expense 30000 4 7500 per year Incr... View full answer

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